Question : Which of these statements is true?
Option 1: At lower rates of interest, people will have a lower preference for liquidity.
Option 2: At higher rates of interest transactions, demand for money will be higher.
Option 3: At lower rates of interest, speculative demand for money will be higher.
Option 4: At higher rates of interest, the liquidity preference of people will increase.
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Correct Answer: At lower rates of interest, speculative demand for money will be higher.
Solution : The correct option is At lower rates of interest, speculative demand for money will be higher .
According to the theory of liquidity preference proposed by J. M. Keynes, speculative demand for money is influenced by the prevailing interest rates. Specifically, when interest rates are lower, people tend to hold less money for transactions and more for speculative purposes.
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