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Chapter 20: Q 11. (page 547)

In Keynes’s analysis of the speculative demand for money, what will happen to demand for money if people suddenly expect that the normal level of the interest rate has fallen? Explain your answer.

Short Answer

Expert verified

The demand for money will decrease.

Step by step solution

01

Step 1. Define demand.

Demand refers to the amount of a commodity that customers are ready to acquire at different prices throughout a given time period.

02

Step 2. Explanation

There will be a scarcity of money. Individuals are likely to predict lower interest rates and, as a result, higher bond prices. If the predicted yield on bonds improved relative to money, people would demand less money.

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Most popular questions from this chapter

John Maynard Keynes is among the most well-known economic theorists. Go to http://en.wikipedia.org/wiki/ John_Maynard_Keynes and write a one-page summary of his life and contributions.

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