According to liquidity preference theory,a decrease in money demand for some reason other than a change in the price level causes
A)the interest rate to fall,so aggregate demand shifts right.
B)the interest rate to fall,so aggregate demand shifts left.
C)the interest rate to rise,so aggregate demand shifts right.
D)the interest rate to rise,so aggregate demand shifts left.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, a decrease in money demand (i.e. people want to hold less money) will cause an excess supply of money in the market, resulting in a decrease in the interest rate. As the interest rate falls, the cost of borrowing decreases, encouraging investment and consumption, which will shift aggregate demand to the right.

According to Liquidity Preference Theory,a Decrease in Money Demand for Some