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Theory of liquidity preference Use the theory of liquidity preference to predict the impact of the following on the real interest rate. Use diagrams and

Theory of liquidity preference

Use the theory of liquidity preference to predict the impact of the following on the real interest

rate. Use diagrams and explain your intuition.

1.

A decrease in the money supply

2.

An increase in income

3.

An increase in transaction costs associated with purchasing stocks and bonds

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