Keynesian Liquidity Preference Theory Quiz
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Questions and Answers

According to Keynes, what are the determinants of the interest rate in the classical model?

  • Real factors of the supply of saving and the demand for investment (correct)
  • Government policies and regulations
  • Monetary factors alone
  • International trade dynamics

What does Keynes consider as the reward for 'parting away with liquidity'?

  • Stock dividends
  • Tax incentives
  • Interest (correct)
  • Real estate appreciation

What does Keynes refer to as the preference for holding cash?

  • Cash aversion
  • Investment inclination
  • Liquidity preference (correct)
  • Asset propensity

In Keynesian analysis, what are the determinants of the interest rate?

<p>Demand for and supply of money (A)</p> Signup and view all the answers

What does Keynes consider interest to be purely?

<p>A monetary phenomenon (B)</p> Signup and view all the answers

Study Notes

Classical Model

  • In the classical model, the interest rate is determined by the interaction between the supply of savings and the demand for investment.
  • According to Keynes, the determinants of the interest rate in the classical model are the supply and demand for loanable funds.

Liquidity Preference

  • Keynes considers the reward for 'parting away with liquidity' as interest.
  • He refers to the preference for holding cash as liquidity preference.

Keynesian Analysis

  • In Keynesian analysis, the interest rate is determined by the liquidity preference and the money supply.
  • The determinants of the interest rate are the desire to hold cash and the availability of cash.

Interest

  • According to Keynes, interest is purely a monetary phenomenon.
  • He considers interest to be the reward for parting with liquidity, rather than a reward for waiting or a return on investment.

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Description

Test your knowledge of Keynesian liquidity preference theory with this quiz. Explore the determinants of the equilibrium interest rate and compare the Keynesian and classical models.

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