According to liquidity preference theory,an increase in the price level would ________.
A)decrease the demand for real money balances
B)increase the supply of real money balances
C)decrease the real interest rate
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

Liquidity preference theory suggests that an increase in the price level would increase the demand for real money balances, not decrease it, as people need more money to conduct transactions at higher prices. It does not directly increase the supply of real money balances or decrease the real interest rate. These effects are determined by central bank policies and the interaction of supply and demand in the money market.

According to Liquidity Preference Theory,an Increase in the Price Level