CAIE A-Level Economics 9.4.8 Interest Rate Determination

CAIE A-Level Economics 9.4.8 Interest Rate Determination
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

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.

How this is tested

  • 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

Question 27

[Maximum number: 1]

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

A

a decrease in liquidity preference

B

a decrease in the level of national income

C

a decrease in the rate of investment

D

a decrease in the supply of money