In the simple liquidity preference model, changes to the money supply will have a smaller effect on interest rates when the money demand curve:
A) is more elastic.
B) is less elastic
C) shifts to the right.
D) is perfectly inelastic.

Question

Quizplus · Accepted Answer

When the money demand curve is more elastic, changes in the money supply will have a smaller effect on interest rates. This is because when the money demand curve is more elastic, individuals and firms are more responsive to changes in interest rates and will adjust their demand for money accordingly. Therefore, a larger change in the money supply is required to have the same effect on interest rates.

In the Simple Liquidity Preference Model, Changes to the Money