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Consider the following statements regarding the demand for money and choose the correct statements.

A. Speculative demand for money is inversely related to the rate of interest.

B. Demand for money balance is often referred to as transaction preference.

C. People desire to hold money broadly for speculative and transaction motive.

D. Transaction demand for money is inversely related to the real income of an economy.

Choose the correct answer from the options given below:

Solution

✅ Correct Option: 3

Speculative demand for money falls as the interest rate rises, since holding money means forgoing higher bond returns, so A is correct. People hold money broadly for the transaction motive and the speculative motive, so C is correct. B is wrong because demand for money is called liquidity preference, and D is wrong because transaction demand is positively related to real income.

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