Question : When the rate of interest is at its maximum, which of the following will follow?
Option 1: The demand for bonds will be at its minimum.
Option 2: The speculative demand for money will be zero.
Option 3: The speculative demand for money will be at its maximum.
Option 4: The speculative demand for money will be equal to the supply of money.
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Correct Answer: The speculative demand for money will be zero.
Solution : The correct answer is The speculative demand for money will be zero.
The amount that a lender charges a borrower for any debt is known as an interest rate, and it is typically stated as a percentage of the principal. The market value of bonds decreases when interest rates rise; hence, there is an inverse relationship between the two variables. As a result, at high interest rates, the demand for money for speculative purposes decreases, and at low-interest rates, it increases.
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