According to liquidity preference theory,the slope of the money demand curve is explained as follows:
A)interest rates rise as the Fed reduces the quantity of money demanded.
B)interest rates fall as the Fed reduces the supply of money.
C)people will want to hold less money as the cost of holding it falls.
D)people will want to hold more money as the cost of holding it falls.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, the slope of the money demand curve is negative, meaning that people will want to hold more money as the cost of holding it falls. As the opportunity cost of holding money (i.e., the interest foregone on other investments) decreases, individuals will choose to hold more money in order to make purchases and conduct transactions. Therefore, when the cost of holding money falls (e.g., when interest rates decline), the quantity of money demanded increases.

According to Liquidity Preference Theory,the Slope of the Money Demand