(a)[12]
Explain the reasons why people demand money under the liquidity preference theory. Consider which reason is the most important.
(b)[13]
In 2015, after a period of low inflation and low interest rates a commentator wrote, ‘If inflation suddenly increases it could result in a faster than expected rise in interest rates. The consumer spending boom will end.’ (Source: London Evening Standard, 26 January 2015) Discuss the possible reasons behind this suggested result.