Economics · Macroeconomics
According to the Liquidity Preference Theory formulated by J.M. Keynes, the speculative demand for money is characterized by which of the following relationships regarding market interest rates?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Speculative demand only exists when interest rates reach the liquidity trap level.
- 2Speculative demand is inversely related to interest rates due to the opportunity cost of holding cash.✓
- 3Speculative demand is positively correlated with interest rates as people save more.
- 4Speculative demand is perfectly inelastic regardless of interest rate fluctuations.
Correct answer
Speculative demand is inversely related to interest rates due to the opportunity cost of holding cash.
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