Question

In​ Keynes's liquidity preference​ theory, what variables determine the demand for real money​ balances? A. The demand for real money balances depends on the interest rate and net exports. B. The demand for real money balances depends on the inflation rate and aggregate output. C. The demand for real money balances depends on the nominal interest rate and real income. D. The demand for real money balances depends on the inflation rate and real income.

Answer 1

Answer: the correct answer is C. the demand for real money balances depends on the nominal interest rate and real income.

Explanation:

According to Keynes the desire for liquidity or demand for money arises because of three motives:

(a) Transaction motive

(b) Precautionary motive

(c) Speculative motive