Question
In the Liquidity Preference Theory, the demand for money
for speculative motives is:Solution
Keynes posited that the speculative demand for money is held to take advantage of future changes in bond prices, which are inversely related to interest rates. When interest rates are low, people expect them to rise (and bond prices to fall), so they prefer to hold liquid money. When interest rates are high, they prefer to hold bonds. Hence, it's inversely related.
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