According to liquidity preference theory,
A)an increase in the interest rate reduces the quantity of money demanded.This is shown as a movement along the curve.An increase in the price level shifts money demand right.
B)an increase in the interest rate increases the quantity of money demanded.This is shown as a movement along the curve.An increase in the price level shifts money demand left.
C)an increase in the price level reduces the quantity of money demanded.This is shown as a movement along the curve.An increase in the interest rate shifts money demand right.
D)an increase in the price level increases the quantity of money demanded.This is shown as a movement along the curve.An increase in the interest rate shifts money demand left.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, an increase in the interest rate reduces the quantity of money demanded, which is shown as a movement along the curve. An increase in the price level would shift the money demand curve to the right, indicating a higher demand for money at every interest rate. Therefore, option A is the correct choice.

According to Liquidity Preference Theory