Different theories of the interest rate are useful for different purposes. When thinking about the short-run determinants of interest rates, it is best to keep in mind:
A) the loanable funds theory.
B) the liquidity preference theory.
C) the classical economic theory.
D) the price level theory.

Question

Quizplus · Accepted Answer

The liquidity preference theory provides a framework for understanding short-term fluctuations in interest rates by emphasizing the demand for money and the preference for liquidity. The loanable funds theory focuses more on long-term interest rate determination based on savings and investment. The classical economic theory is not as relevant to short-run interest rate fluctuations, and the price level theory is more related to inflation than interest rates.

Different Theories of the Interest Rate Are Useful for Different