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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

What is the theory of liquidity preference? How does it help explain the downward slope of the aggregate-demand curve?

To determine

Liquidity preference theory and downward sloping of aggregate demand.

Explanation

Keynes in his classic book “The General Theory of Employment, Interest, and Money”, proposed the theory of liquidity preference, according to which, the interest rate adjusts to bring money supply and money demanded into balance. In other words, it is the theory of how the interest rate is determined.

According to the theory, the aggregate–demand curve slopes downward be...

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