The concept of 'Liquidity Preference' includes which of the following motives? MCQ with Answer and Explanation

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The concept of 'Liquidity Preference' includes which of the following motives?

A. Only transactions motive

B. Only speculative motive

C. Transactions, precautionary and speculative motives

D. Only precautionary motive

Answer: Option C

Solution (By JKSSB Mock Tests)

According to Keynes, the demand for money (liquidity preference) arises from three motives: transactions, precautionary and speculative.

This question belongs to: Economy GK Economy Set 1

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Practice More Economy Set 1 Questions

Question #1

If the reserve ratio is 10%, the simple deposit/money multiplier is:

A. 10

B. 5

C. 100

D. 20

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Correct Answer: Option A

Explanation:
Money multiplier = 1/reserve ratio = 1/0.10 = 10.

This question belongs to: Economy GK Economy Set 1

Question #2

Which of the following is a characteristic of the 'Sudden Stop' literature?

A. Capital-flow reversals are always gradual and benign

B. Only trade shocks matter

C. Abrupt reversals of capital inflows can cause large real depreciations, output collapses and financial crises

D. Capital flows never reverse

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Correct Answer: Option C

Explanation:
Sudden-stop models analyse the macroeconomic and financial consequences of large and abrupt reversals in capital inflows, which often trigger currency crises, credit contractions and sharp recessions.

This question belongs to: Economy GK Economy Set 1

Question #3

The term 'Capital Formation' is essential for economic growth because it:

A. Reduces the productive capacity of the economy

B. Has no relation to productivity

C. Increases the stock of productive assets

D. Only increases consumption

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Correct Answer: Option C

Explanation:
Capital formation involves net addition to the stock of capital goods, which enhances the productive capacity of the economy and supports long-term growth.

This question belongs to: Economy GK Economy Set 1

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