Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | Liquidity preference | (I) | Loss to a bondholder from a fall in the price of her bonds |
| (B) | Capital loss | (II) | Demand for money for carrying out transactions |
| (C) | Speculative demand | (III) | Demand for money balance, weighing the advantage of liquidity against the interest foregone |
| (D) | Transaction demand | (IV) | Demand for money as a store of wealth |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) - (III), (B) - (I), (C) - (IV), (D) - (II)
People hold money for transactions and to keep wealth. Each term below names one side of this demand for money.
| List-I | List-II | Reason |
|---|---|---|
| (A) Liquidity preference | (III) Demand for money balance, weighing the advantage of liquidity against the interest foregone | Holding money gives liquidity but loses interest. Demand for money is therefore called liquidity preference. |
| (B) Capital loss | (I) Loss to a bondholder from a fall in the price of her bonds | A falling bond price makes the bondholder poorer. |
| (C) Speculative demand | (IV) Demand for money as a store of wealth | People hold wealth in money when they expect bond prices to fall. |
| (D) Transaction demand | (II) Demand for money for carrying out transactions | Money is held to pay for goods between paydays. |
NCERT (2026-27): “Box 3.1: Demand and Supply for Money : A Detailed Discussion … While deciding on how much money to hold at a certain point of time one has to consider the trade off between the advantage of liquidity and the disadvantage of the foregone interest. Demand for money balance is thus often referred to as liquidity preference. People desire to hold money balance broadly from two motives.” “The Speculative Motive … If you are a bond holder a decrease in bond price means a loss to you - similar to a loss you would suffer if the value of a property held by you suddenly depreciates in the market. Such a loss occurring from a falling bond price is called a capital loss to the bond holder. …” Glossary: “Speculative demand - Demand for money as a store of wealth.” Glossary: “Transaction demand - Demand for money for carrying out transactions.” |