Keynes argued that when interest rates were low relative to some normal value,people would expect bond prices to ________ so the quantity of money demanded would ________.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Question

Quizplus · Accepted Answer

Keynes argued that when interest rates are low, people expect them to rise in the future, which would decrease bond prices (since bond prices move inversely to interest rates). Therefore, anticipating lower bond prices, people would demand more money (liquidity preference) instead of holding bonds, leading to an increase in the quantity of money demanded.

Keynes Argued That When Interest Rates Were Low Relative to Some