Financial Markets

Multiple Choice

In his liquidity Preference Framework, Keynes assumed that money has a zero rate of return; thus

  • when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. 
  • when interest rates rise, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise. 
  • when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to fall. 
  • when interest rates fall, the expected return on money falls relative to the expected return on bonds, causing the demand for money to rise. 
 

Diskussion