Question

According to liquidity preference theory, if there were a surplus of money, then A. the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. B. the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. C. the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. D. the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.

Answer 1

Answer:

Choice A would be the right response to either the following statement.

Explanation:

• This theory seems to be a hypothesis that implies that shareholders will seek a higher rate of return as well as premiums on high-term securities with significantly increased risk maturity since, if all other considerations are similar, investors choose cash and perhaps other extremely liquid assets.
• Even if there is an excess of capital, the inflation rate would have been over stability, as well as the amount of money needed would have been too increasing for stability.

The other choices are not relevant to the situation in question. So choice A is the right one.