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- Macroeconomic Policy Toolseconomics-mcqs › macroeconomic-policy-tools
- Published
- 31 May 2019
- Last updated
- 28 May 2026
According to Keynes' liquidity preference theory, what primarily determines the interest rate?
Multiple choice question for Macroeconomic Policy Tools. Select an option, then review the explanation below.
Explanation
Keynes' liquidity preference theory states that the interest rate is set by the equilibrium between the supply of money and the demand for money. This contrasts with other theories that focus on loanable funds or labor markets.
More Macroeconomic Policy Tools MCQs
Practice related questions from the same subject.
- 1.Which of the following functions as an automatic economic stabilizer?
- 2.If the government raises its spending by Rs16 billion and the multiplier effect outweighs the crowding out effect, what will be the impact on the economy?
- 3.Which economic phenomenon is illustrated when higher government spending boosts income, shifts the demand for money to the right, increases interest rates, and consequently reduces investment?
- 4.What is the effect of an increase in the marginal propensity to consume (MPC) on the multiplier?
- 5.What is the immediate effect of a rise in government expenditure on the economy?