Question:
According to Keynes’ Liquidity Preference Theory, the speculative demand for money is:
(1) Directly related to income.
(2) Inversely related to the interest rate.
(3) Directly related to the interest rate.
(4) Independent of the interest rate.
(5) Determined by the transaction motive.
Correct Answer:
(2)
Answer Explanation:
Speculative demand is money held to buy bonds later. When interest rates are high, bond prices are low (and opportunity cost of holding cash is high), so people hold less money. Thus, it is inversely related.
Topic: Money and Banking Year: 2024
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