The speculative demand for money is: OA. positively related to interest rates B. an active balance (earns interest) Inversely related to interest rates O D. directly related to income
Speculative Demand for Money : The speculative demand for money is the demand for money when the money is demanded to be held as an asset in order to earn some rate of interest in the market unlike for transaction purposes where the money is held as ideal cash.
There is an inverse relationship between speculative demand for money and the market rate of interest, because of the inverse relation between bond prices and the market rate of interest.
When the rate of interest in the economy decreases there is expectation of interest rate to rise and people tend to save less cash in order to earn interest rather than buying bond from that cash and hence the demand for bonds in the economy reduces When the demand for the bond reduces the price of the bond also falls down there is capital loss in the economy which induces the speculative demand for money to rise. Hence there is an inverse relationship between speculative demand for money and the rate of interest.
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