What does keynes's liquidity preference theory predict about the relationship between interest rates and the velocity of money?
a. as interest rates rise, people will reduce their money holdings and therefore velocity will decrease.
b. as interest rates rise, people will increase their money holdings and therefore velocity will decrease.
c. as interest rates rise, people will reduce their money holdings and therefore velocity will rise.
d. as interest rates rise, people will increase their money holdings and therefore velocity will rise.

C.

Explanation:

Keyne's Liquidity Preference Theory states that the demand for money is not to borrow money but instead is the desire to remain liquid. According to my research on this theory, I can say that based on the information provided within the question as interest rates rise, people will reduce their money holdings and therefore velocity will rise.

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cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.