According to liquidity preference theory,if the price level increases,then the equilibrium interest rate
A)rises and the aggregate quantity of goods demanded rises.
B)rises and the aggregate quantity of goods demanded falls.
C)falls and the aggregate quantity of goods demanded rises.
D)falls and the aggregate quantity of goods demanded falls.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, as the price level increases, the demand for money increases, leading to an increase in the interest rate. As the interest rate increases, the demand for investment decreases, leading to a decrease in the aggregate quantity of goods demanded. Therefore, the equilibrium interest rate rises and the aggregate quantity of goods demanded falls.

According to Liquidity Preference Theory,if the Price Level Increases,then the Equilibrium