CAIE A-Level Economics 9.4.8 Interest Rate Determination

Practise using loanable-funds and Keynesian liquidity-preference models to determine interest rates and predict effects of money supply, money demand, saving and investment shifts.

Exam points

locate the Keynesian interest rate where vertical money supply meets liquidity preference
shift money supply or liquidity preference and identify the new equilibrium interest rate
distinguish money-market determination from loanable-funds saving and investment flows

[Maximum number: 1]

According to Keynesian theory, what will cause the rate of interest to rise?

a decrease in liquidity preference

a decrease in the level of national income

a decrease in the rate of investment

a decrease in the supply of money

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9.4.8—Interest rate determination question 1