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JAMB Economics 1987 Question 35

Question 35

Money and Inflation

In the Keynesian model

  1. A.the demand for money is inversely related to the rate of interest
  2. B.investment is directly related to the rate of interest
  3. C.investment is not related to the rate of interest
  4. D.the demand for money is directly related to the rate of interest.
Show the answer and explanation

Answer: A (the demand for money is inversely related to the rate of interest)

Explanation

The interest rate is the cost of holding money instead of bonds. When it rises, people hold less money (speculative demand falls), so the relationship is inverse.