Liquidity preference theory is most relevant to the
A)short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

Question

Quizplus · Accepted Answer

Liquidity preference theory, associated with John Maynard Keynes, posits that in the short run, the interest rate adjusts to equilibrate the money supply with the demand for money. This theory emphasizes the role of interest rates in balancing the supply and demand for liquid assets (money) in the economy.

Liquidity Preference Theory Is Most Relevant to the