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Economics (AS & A Level) · May / June 2022 · Paper 31 · Question 25

9708Money and banking

Which statement about the Keynesian liquidity preference demand for money model is correct?

  1. ABoth the transactions and precautionary motives for holding liquidity are interest rate elastic.
  2. BThe demand for liquidity is completely interest rate inelastic at low rates of interest.
  3. CThe demand to hold liquidity by households is stable.
  4. DThe rate of interest on long-term government securities is inversely related to their price.

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Correct answer: D. The rate of interest on long-term government securities is inversely related to their price.

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