According to the theory of liquidity preference, aneconomy’s interest rate adjustsa. to balance the supply and demand for loanablefunds.b. to balance the supply and demand for money.c. one-for-one to changes in expected inflation.d. to equal the interest rate prevailing in worldfinancial markets.

Economics:
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Chapter14: Macroeconomic Policy: Tradeoffs, Expectations, Credibility, And Sources Of Business Cycles
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Problem 6E
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According to the theory of liquidity preference, an
economy’s interest rate adjusts
a. to balance the supply and demand for loanable
funds.
b. to balance the supply and demand for money.
c. one-for-one to changes in expected inflation.
d. to equal the interest rate prevailing in world
financial markets.

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