The theory of liquidity preference states that the quantity of real money balances demanded is:
A)negatively related to both the interest rate and income.
B)positively related to both the interest rate and income.
C)positively related to the interest rate and negatively related to income.
D)negatively related to the interest rate and positively related to income.

Question

Quizplus · Accepted Answer

The theory of liquidity preference suggests that people demand money for transactions and precautionary purposes, which increases with income, and for speculative purposes, which decreases with higher interest rates.

The Theory of Liquidity Preference States That the Quantity of Real