Q. In which of the following situations , there will be a likely large speculative demand for money?
Answer: When the current rate of interest is lower than people expect it to be in the near future
Notes: Speculative demand for money arises when individuals anticipate future changes in interest rates or prices. When the current interest rate is lower than expected, people prefer holding cash to invest later at higher rates, leading to increased speculative demand. This behavior is rooted in the liquidity preference theory, which suggests that individuals hold money to capitalize on future investment opportunities. Historically, during periods of low interest rates, such as in the aftermath of the 2008 financial crisis, there was a notable increase in speculative investments as people sought to maximize returns.