The Keynesian theory of money demand emphasizes the importance of
A)a constant velocity.
B)irrational behavior on the part of some economic agents.
C)interest rates on the demand for money.
D)expectations.

Question

Quizplus · Accepted Answer

The Keynesian theory of money demand emphasizes the importance of interest rates on the demand for money. According to Keynes, people hold money for transactions as well as speculative purposes. As interest rates increase, the opportunity cost of holding money increases and people tend to hold less money. As interest rates decrease, the opportunity cost of holding money decreases and people tend to hold more money. Therefore, money demand is inversely related to interest rates according to the Keynesian theory.

The Keynesian Theory of Money Demand Emphasizes the Importance of