SSC CHSL 2023 PYQ — Question 46

The correct answer is option 3 i.e. At lower rates of interest, speculative demand for money will be higher.

The statement "At lower rates of interest, speculative demand for money will be higher" is true. This concept is based on the liquidity preference theory put forward by economist John Maynard Keynes.

According to Keynes, the demand for money is influenced by three motives: transaction, precautionary, and speculative. Speculative demand refers to the desire to hold money in the form of cash rather than bonds or other assets, based on expectations of future interest rates.

At lower interest rates, the opportunity cost of holding money in the form of cash rather than investing in bonds or other assets decreases. As interest rates drop, people anticipate that bond prices might rise (since there is an inverse relationship between interest rates and bond prices), prompting them to hold more cash in the hope of taking advantage of potential future price increases. This increases speculative demand for money, as people prefer liquidity to capitalize on future opportunities.