According to liquidity preference theory, the money-supply curve would shift if the Fed
A)engaged in open-market transactions.
B)changed the discount rate.
C)changed the reserve requirement.
D)did any of the above.

Question

Quizplus · Accepted Answer

According to liquidity preference theory, the demand for money depends on the interest rate. The supply of money is determined by the Fed through open-market transactions, changes in the discount rate, and changes in the reserve requirement. Therefore, if the Fed engages in any of the above activities, the money-supply curve would shift, affecting the interest rate and the demand for money. Hence, the best choice is D, which includes all the options.

According to Liquidity Preference Theory, the Money-Supply Curve Would Shift