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pav-90 [236]
3 years ago
15

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the inte

rest rate will
a. increase and the quantity of money demanded will decrease.
b. increase and the quantity of money demanded will increase.
c. decrease and the quantity of money demanded will decrease.
d. decrease and the quantity of money demanded will increase.
Business
1 answer:
melisa1 [442]3 years ago
4 0

Answer:

The correct answer is option A.

Explanation:

Liquidity preference theory was given by J.M Keynes. He states that money is demanded by people because it holds certain liquidity.

There are various motives involved for which people prefer liquidity. These motive are precautionary, transactionary and speculative motives respectively.

When the demand for money is more than supply, it means there is excessive demand. This excess demand will lead to increase in the interest level. At higher interest, the quantity of money demanded will fall.

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The tabular representation (demand schedule is down below)

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From the table above and the graphical representation attached, <u>the law of demand</u> is confirmed. The law of demand states that the price of a good and the quantity demanded are inversely proportional.

Notice that when the price of the juice increases, the demand decreases and when the price decreases, the demanded increases. This shows that majority of consumers will be more willing to make purchases when there is a decrease in price.

Check the attachment for the graphical representation.

Download xlsx
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<em>brainly.com/question/26293415</em>

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