Question

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

• A. $\infty$ to $0$
• B. $0$ to $\infty$
• C. 1 to 0
• D. 0 to 1

Answer 1

The correct option is A

$\infty$ to $0$

The speculative demand for money is given by $M_s^d=\frac{(r_{\text{max}}-r)}{r-r_{\text{min}}}$
Therefore as the interest rate increase from minimum to maximum, the speculative demand for money goes from $\infty$ to $0$.