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Due to the effects of the speculations demand for money, the aggregate money demand curve is downward sloping and convex to the origin. At a certain level of interest rate, the aggregate demand for money curve becomes horizontal which means that the demand for money is perfectly interest elastic. This implies that further fall in interest has no effect on the speculation demand for money. This situation is referred to as the liquidity trap. At the liquidity trap interest rate, people prefer to hold their wealth in cash rather than in bonds
Dana05 answered the question on August 14, 2019 at 07:21
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