Which of the following is inversely related to the rate of interest?

Correct option is C

Correct Answer: (c) Speculative demand for money
Explanation:
· Speculative demand for money (as per Keynes) is inversely related to the rate of interest.
· When interest rates are high, people prefer to invest in bonds, so speculative demand for money is low.
· When interest rates are low, people expect rates to rise later, so they hold more money and speculative demand becomes high.
Information Booster:
· Speculative demand arises because individuals decide whether to hold money or invest in financial assets like bonds.
· Formula relationship:
· Interest rate ↑ → Speculative demand ↓
· Interest rate ↓ → Speculative demand ↑
· This plays a key role in monetary policy transmission and liquidity preference theory.
Additional Knowledge:
· Classical demand for money (a): Based on quantity theory; depends on income, not interest rate.
· Transaction demand for money (b): Directly related to income; largely interest-inelastic.
· Precautionary demand for money (d): Held for unexpected needs; also mostly not affected by interest rate.