Which of the following is a difference between Keynes liquidity preference theory and the modern quantity theory of money?
A) The modern quantity theory of money specifies 1 asset instead of 3 assets like the liquidity preference theory.
B) The liquidity preference theory assumes the return on money to be 1, unlike the modern quantity theory of money.
C) The liquidity preference theory assumes velocity to be constant, unlike the modern quantity theory of money.
D) The modern quantity theory predicts that interest rate changes have little effect on money demand unlike the liquidity preference theory.

Question

Quizplus · Accepted Answer

Keynes' liquidity preference theory suggests that demand for money is primarily determined by interest rates, with higher rates decreasing the demand for money as people prefer to invest in interest-bearing assets. The modern quantity theory of money, in contrast, posits that changes in interest rates have a minimal impact on the demand for money, focusing instead on how changes in the money supply directly affect price levels.

Which of the Following Is a Difference Between Keynes Liquidity