The theory of liquidity preference assumes that the nominal supply of money is determined by the
A. level of real GDP.
B. rate of inflation.
C. interest rate.
D. the Federal Reserve.
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According to liquidity preference theory, the money supply curve would shift right
A. if the money demand curve shifted right.
B. if the Federal Reserve chose to increase money supply.
C. if the interest rate increased.
D. All of the above are correct.
When the Fed buys government bonds, the reserves of the banking system
A. increase, so the money supply increases.
B. increase, so the money supply decreases.
C. decrease, so the money supply increases.
D. decrease, so the money supply decreases.
Liquidity refers to
A. the relation between the price and interest rate of an asset.
B. the risk of an asset relative to its selling price.
C. the ease with which an asset is converted into a medium of exchange.
D. the sensitivity of investment spending to changes in the interest rate.
According to liquidity preference theory, an increase in money demand for some reason other than a change in the price level causes
A. the interest rate to fall so aggregate demand shifts right.
B. the interest rate to fall so aggregate demand shifts left.
C. the interest rate to rise so aggregate demand shifts right.
D. the interest rate to rise so aggregate demand shifts left.