Question

What does​ Keynes's liquidity preference theory predict about the relationship between interest rates and the velocity of​ money?

A. As interest rates​ rise, people will reduce their money holdings and therefore velocity will decrease.
B. As interest rates​ rise, people will increase their money holdings and therefore velocity will decrease.
C. As interest rates​ rise, people will reduce their money holdings and therefore velocity will rise.
D. As interest rates​ rise, people will increase their money holdings and therefore velocity will rise.

Answer 1

Answer:

C.

Explanation:

Keyne's Liquidity Preference Theory states that the demand for money is not to borrow money but instead is the desire to remain liquid. According to my research on this theory, I can say that based on the information provided within the question as interest rates​ rise, people will reduce their money holdings and therefore velocity will rise.

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