According to which theory do changes in the interest rate bring the money market into equilibrium?
A) purchasing-power parity theory
B) aggregate-demand and aggregate-supply theory
C) liquidity-preference theory
D) classical theory

Question

Quizplus · Accepted Answer

Changes in the interest rate are explained by the liquidity-preference theory, which suggests that changes in the interest rate can bring about changes in the demand and supply of money, leading to an equilibrium in the money market. This theory is associated with John Maynard Keynes and his work on macroeconomics.

According to Which Theory Do Changes in the Interest Rate