Which of the following statements is/are correct about speculative demand for money?

i. It is Perfectly interest elastic

ii. It is Relatively interest elastic

iii. It is Perfectly interest inelastic

iv. It is Relatively interest inelastic

The correct answer is Only ii.Key Points

• It is Perfectly interest elastic:
  • This statement is incorrect.
  • Speculative demand for money is not perfectly interest elastic because it depends on expectations about future interest rate movements.
  • It is influenced by various factors such as expectations about future interest rates, risk perceptions, and alternative investment opportunities.
• It is Relatively interest elastic:
  • This statement is correct.
  • Speculative demand for money is relatively interest elastic because it responds to changes in interest rates, albeit not proportionately.
  • When interest rates are expected to rise, people may prefer to hold less money and invest in interest-bearing assets instead.
  • Conversely, when interest rates are expected to fall, people may prefer to hold more money.
• It is Perfectly interest inelastic:
  • This statement is incorrect.
  • Speculative demand for money is not perfectly interest-inelastic because it does respond to changes in interest rates, although not as strongly as some other forms of demand for money.
• It is Relatively interest inelastic:
  • This statement is incorrect.
  • As mentioned earlier, speculative demand for money is relatively interest elastic, not relatively interest inelastic

• hence only ii is correct.