Because the liquidity-preference framework focuses on the
A)short run,it assumes the price level adjusts to bring the money market to equilibrium.
B)short run,it assumes the interest rate adjusts to bring the money market to equilibrium.
C)long run,it assumes the price level adjusts to bring the money market to equilibrium.
D)long run,it assumes the interest rate adjusts to bring the money market to equilibrium.

Question

Quizplus · Accepted Answer

The liquidity-preference framework is a short-run framework that focuses on the relationship between money supply and demand, and how changes in the demand for money affect the interest rate. Therefore, it assumes that the interest rate adjusts to bring the money market to equilibrium, not the price level. Option A and C are incorrect because they imply that the liquidity-preference framework is a long-run framework, which is not the case. Option D is incorrect because it mentions the long-run adjustment of the interest rate, which is beyond the scope of the liquidity-preference framework.

Because the Liquidity-Preference Framework Focuses on the