Speculative demand for money is zero when market rate of interest is
A)more than the 'critical rate'.
B)more than the market rate of interest but less than the critical rate (i.e. capital gains occur).
C)less than the market rate of interest.
D)lowest (i.e. in liquidity trap).

Question

Quizplus · Accepted Answer

Speculative demand for money is zero when the market rate of interest is more than the 'critical rate'. This is because, at higher interest rates, individuals prefer to invest in bonds or securities rather than holding money, as the opportunity cost of holding money (in terms of foregone interest earnings) is higher.

Speculative Demand for Money Is Zero When Market Rate of Interest