According to the Liquidity Preference Theory which of the following statements is correct?
A) Interest rates are a "reward" to savers
B) Transactions, precautionary and speculative motives are principal reasons why businesses borrow
C) The total demand for money is the sum of the transactions, precautionary and speculative demands
D) The supply of money is assumed to be elastic
E) Government decisions concerning the money supply are based primarily on interest rates

Question

Quizplus · Accepted Answer

The Liquidity Preference Theory, proposed by John Maynard Keynes, suggests that the demand for money is not only for transactions purposes but also includes precautionary and speculative motives. The theory posits that individuals prefer liquidity and must be enticed to part with their liquidity for the promise of a future return, hence the demand for money encompasses transactions, precautionary, and speculative demands, making the total demand for money the sum of these components.

According to the Liquidity Preference Theory Which of the Following