According to liquidity preference theory,the money-supply curve would shift if the Fed
A)engaged in open-market operations.
B)increased money demand.
C)increased the real income.
D)did any of the above.

Question

Quizplus · Accepted Answer

Liquidity preference theory states that individuals prefer to hold their wealth in liquid form, such as money, rather than in non-liquid forms, such as bonds. Therefore, the demand for money is influenced by factors such as interest rates, income, and expectations. If the Fed engages in open-market operations, such as buying or selling government securities, it can influence the supply of money and shift the money-supply curve. Therefore, choice A is the best option as it directly relates to the theory. Choices B and C may also affect demand for money, but do not directly relate to the liquidity preference theory.

According to Liquidity Preference Theory,the Money-Supply Curve Would Shift If