Keynes's liquidity preference theory indicates that the demand for money is
A)constant.
B)positively related to interest rates.
C)negatively related to interest rates.
D)negatively related to bond values.

Question

Quizplus · Accepted Answer

Keynes's liquidity preference theory suggests that the demand for money is negatively related to interest rates. As interest rates increase, the opportunity cost of holding money also increases, and individuals will choose to hold less money and instead invest in bonds or other interest-bearing assets. Conversely, when interest rates decrease, the opportunity cost of holding money decreases, and individuals will choose to hold more money.

Keynes's Liquidity Preference Theory Indicates That the Demand for Money