10 Jul USE THE THEORY OF LIQUIDITY PREFERENCE AND THE MARKET FOR REAL MONEY BALANCES TO ILLUSTRATE GRAPHICALLY
a. Use the theory of liquidity preference and th Show more As an economy moves into a recession income falls. a. Use the theory of liquidity preference and the market for real money balances to illustrate graphically the impact of a decrease in income on the equilibrium interest rate. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values. b. Explain in words what happens to the equilibrium interest rate as a result of the fall in income. Show less
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