According to the Liquidity Preferences Model, these are the expected first impact (short run) coming from an increase of Money Supply, EXCEPT: Question 4 options: Increase in Demand for Bonds. Increase in Money in circulation Decrease in Nominal Interest Rates Increase in economic activity.
According to the Liquidity Preferences Model, these are the expected first impact (short run) coming from an increase of Money Supply, EXCEPT:
Question 4 options:
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Increase in Demand for Bonds. |
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Increase in Money in circulation |
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Decrease in Nominal Interest Rates |
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Increase in economic activity. |
According to the theory of liquidity preference, to balance the demand and supply for money the rate of interest adjusts.
Thus, an increase in the money supply in the short run will tend to decrease the equilibrium interest rate and thus the consumers will prefer keeping the money in hand and therefore, there will be increase in money in circulation. This increase in circulation of money will ultimately increase the economic activities as economic agents be more involved in producing, consuming etc.
According to the Liquidity Preferences Model, the expected short run coming from an increase of Money Supply are:
Decrease in Nominal Interest Rates
Increase in Money in circulation and
Increase in economic activity.
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