Economics · Macroeconomics
The economy of a developing nation is experiencing a rapid technological boom, leading to a significant increase in the Real Gross Domestic Product (GDP). As a result, the average household income has risen by 15 percent over the last two years. At the same time, the central bank has maintained a constant nominal money supply to keep inflation in check. According to the Liquidity Preference Theory, how will this increase in income levels affect the Money Demand Curve and the resulting equilibrium interest rate in the money market?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1The money demand curve will remain stationary while the money supply curve shifts to the right.
- 2There will be a movement along the money demand curve, but the curve itself will not shift.
- 3The money demand curve will shift to the right, leading to an increase in the equilibrium interest rate.✓
- 4The money demand curve will shift to the left, leading to a decrease in the equilibrium interest rate.
Correct answer
The money demand curve will shift to the right, leading to an increase in the equilibrium interest rate.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Economics?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Macroeconomics MCQs →Want more practice questions on Macroeconomics?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Macroeconomics