Speculative and Precautionary Demands

Q.

Why is speculative demand for money inversely related to the rate of interest?

Q.

Explain speculative and transaction demands for money.

Q.

Why is speculative demand for money inversely related to the rate of interest?

Q.

What is transaction demand for money? How is it related to the value of transactions over a specified period of time?

Q.

When interest rates are high, speculative demand for money is ________.

1. Low

2. Independent of interest rates

3. High

4. Invariable

Q.

What is liquidity trap?

Q. When interest rates are high, speculative demand for money is .

1. high
2. low
3. zero
4. invariable

Q. According to Keynes, the speculative demand for money is due to __________.

1. general tendency to speculate to make quick return
2. all the three
3. money is better store of value than any other long term financial assets
4. higher returns on speculative activities

Q.

Speculative demand for money is given by $M_s^d=$

1. $\frac{(r_{\text{max}}+r)}{r+r_{\text{min}}}$

2. $\frac{(r_{\text{max}}+r)}{r-r_{\text{min}}}$

3. $\frac{(r_{\text{max}}-r)}{r-r_{\text{min}}}$

4. $\frac{(r-r_{\text{min}})}{r_{\text{max}}-r}$

Q.

If the present rate of interest is $10\%$, the maximum interest rate is $15\%$ and the minimum interest rate is $5\%$, which of the following is the speculative demand for money?

1. 30

2. 25

3. 2

4. 1

Q.

As interest rate increases from its minimum value to its maximum value, the speculative demand for money goes from:

1. $0$ to $\infty$

2. 1 to 0

3. 0 to 1

4. $\infty$ to $0$

Q. Distinguish between the following: Normal goods and Inferior goods

Q. If the rate of interest increases, the precautionary demand for money will be .

1. high
2. low
3. zero
4. the same

Q.

How is income related to precautionary demand for money?

Q. Which of the following is the main function of money according to modern economists ?

1. Medium of exchange
2. Common measure of value
3. Store of value
4. All of the above

Q. Speculative demand for money is given by $M_s^d$ = .

1. $\frac{r_{max}-r}{r-r_{min}}$
2. $\frac{r_{max}+r}{r-r_{min}}$
3. $\frac{r-r_{min}}{r_{max}-r}$
4. $\frac{r_{max}+r}{r+r_{min}}$

Q.

The act of holding money as insurance against cases of emergency gives rise to ______________ demand.

1. Speculative

2. Transaction

3. Precautionary

4. Liquidity

Q. If the size of income of a family is increasing, the precautionary demand of money will .

1. increase
2. decrease
3. remain constant
4. become zero

Q.

If the rate of interest is high, the precautionary demand for money will be:

1. Cannot be determined

2. Low

3. High

4. Independent of interest rates

Q.

If the availability of credit is low, the precautionary demand for money will be:

1. Low

2. High

3. Independent of credit

4. Cannot be determined

Q. MSME has launched which important initiatives on the sidelines of the 14th MSME National Board Meeting at Vigyan Bhavan in August 2016?

1. MSME Databank Portal
2. Online Facilitation Web Portal
3. Both of the above
4. Neither of the above

Q. The cost of bank credit is determined in India by a system of benchmark prime lending rate which is charged by a bank to the most creditworthy customers, and all bank loans are given at a rate equal to or higher than the benchmark prime lending rate. What determines this rate of interest?

1. It is fixed by the Reserve Bank of India.
2. It is determined by the Ministry of Finance.
3. It is determined by the bank concerned.
4. It is a competitive rate determined by market forces of supply and demand for credit.

Q.

How many major motives exist to hold money with oneself?

1. 4

2. 1

3. 2

4. 3

Q. Cheap money policy means __________.

1. making money available to trade and industry at cheaper interest rate.
2. giving money at discounted price
3. printing money by cost efficient printing technology
4. demanding more money for the same goods than earlier.

Q.

Which of the following factors affect(s) the precautionary demand?

1. Accessibility to ATMs

2. Size of income

3. Interest rate

4. Number of Banks in the area

Q. In the case of inferior goods, the law of demand fails.

1. True
2. False

Q.

The demand for money which arises from not wanting to invest in stocks and bonds fearing capital loss is called:

1. Speculative demand

2. Precautionary demand

3. Transaction demand

4. Liquidity demand

Q.

If the size of income of a family is increasing, the precautionary demand of money will:

1. Increase

2. Cannot be determined

3. Decrease

4. Remain constant

Q. a. Define money. Explain how money can _____.
i. Overcome the difficulties of double coincidence of wants
ii. Act as a store of value
iii. Help producers employ various factors of production.

Q. (a) In which sub-account and on which side of balance of payments account will foreign investments in India be recorded? Given reasons.
(b) What will be the effect of foreign investments in India on exchange rate? Explain.