Question

On what does the demand for money for speculative purpose depend?

• A. National income
• B. Price level
• C. Market interest rate
• D. None of these

Hint:

The speculative demand for money is inversely related to the market interest rate, as lower rates make speculative investments more attractive.

Answer 1

The Correct Option is C

Step 1: Understanding Speculative Demand for Money:
The speculative demand for money refers to the demand for money that is held for investment purposes, particularly when people expect changes in interest rates or asset prices. It is influenced by the desire to hold liquid assets when there is uncertainty about future returns.
Step 2: Analyzing the Options:
- Option (A) National income: While national income may influence overall demand for money, it is not the primary factor for speculative demand. Speculative demand is more directly tied to changes in interest rates and expectations about future asset prices.
- Option (B) Price level: The price level can affect the transaction demand for money, but speculative demand is influenced by the expectations about future returns rather than the current price level.
- Option (C) Market interest rate: This is the correct answer. The demand for money for speculative purposes is inversely related to the market interest rate. As interest rates rise, people tend to invest less in speculative assets, and as interest rates fall, the demand for holding money for speculation increases.
- Option (D) None of these: This is incorrect, as the market interest rate is the most relevant factor.
Step 3: Conclusion and Answer:
The correct answer is (C) because the speculative demand for money is largely determined by the market interest rate.