The speculative demand for money may not exist because
A)banks now pay interest on some types of checkable deposits.
B)there are alternative riskless assets paying higher returns than the return on money.
C)the transactions demand can be shown to depend on interest rates.
D)government regulations have eliminated risk in the financial markets.

Question

Quizplus · Accepted Answer

The speculative demand for money arises when people hold money not for the purpose of transactions or precautionary motives, but rather to take advantage of opportunities that arise in financial markets. If there are alternative riskless assets that pay higher returns than the return on money, the speculative demand for money is likely to be low. Therefore, option B is the correct answer. Option A is incorrect because paying interest on some types of checkable deposits could actually increase the demand for money. Option C is incorrect because the transactions demand for money is not the same as the speculative demand. And finally, option D is incorrect because government regulations do not necessarily eliminate risk in financial markets.

The Speculative Demand for Money May Not Exist Because