Homework Help: economics

Posted by Elizabeth on Tuesday, November 25, 2008 at 10:11pm.

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

a. interest rates rise as the Fed reduces the quantity of money demanded.

b. interest rates fall as the Fed reduces the supply of money.

c. people will want to hold less money as the cost of holding it falls.

d. people will want to hold more money as the cost of holding it falls.

economics - drwls, Wednesday, November 26, 2008 at 8:59am
I am not familiar with the theory, but only (d) seems to make sense.
economics - economyst, Wednesday, November 26, 2008 at 12:11pm
The liquidity preference theory (hypothesis) comes from Keynes.
See, for example, http://www.answers.com/topic/liquidity-preference-theory

I too think d is the correct answer.

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