In the liquidity-preference model, an increase in people's incomes causes the
A)money supply curve to shift to the right.
B)money supply curve to shift to the left.
C)money demand curve to shift to the left.
D)money demand curve to shift to the right.

Question

Quizplus · Accepted Answer

An increase in people's incomes will cause an increase in the demand for money (as people will have more money to spend). This, in turn, will shift the money demand curve to the right. As a result, the equilibrium interest rate will increase, and the quantity of money demanded will also increase. Therefore, the money demand curve shifts to the right.

In the Liquidity-Preference Model, an Increase in People's Incomes Causes