According to liquidity preference theory,the slope of the money demand curve is explained as follows:
A)Interest rates rise as the Fed reduces the quantity of money demanded.
B)Interest rates fall as the Fed reduces the supply of money.
C)People will want to hold less money as the cost of holding it falls.
D)People will want to hold more money as the cost of holding it falls.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, as the cost of holding money (i.e. interest rates) falls, people will want to hold more money. Therefore, the slope of the money demand curve is downward sloping.

According to Liquidity Preference Theory,the Slope of the Money Demand