Question

At a high interest rate, which outcome is correct?

Options

• People expect interest rates to fall, buy bonds, and speculative demand for money is low

• People hold only money and speculative demand becomes infinite

• Bond prices are expected to fall and people buy bonds

• People expect interest rates to rise, sell bonds, and speculative demand for money is high

Answer 1

At a high interest rate, people expect interest rates to fall. They buy bonds, so speculative demand for money is low.