CH. 13 THE GENERAL THEORY OF INTEREST 171

opportunity for wide fluctuations in liquidity-prefer-ence due to the speculative-motive.

It may illustrate the argument to point out that, ifthe liquidity-preferences due to the transactions-motiveand the precautionary-motive are assumed to absorb aquantity of cash which is not very sensitive to changes inthe rate of interest as such and apart from its reactionson the level of income, so that the total quantity ofmoney, less this quantity, is available for satisfyingliquidity-preferences due to the speculative-motive, therate of interest and the price of bonds have to be fixedat the level at which the desire on the part of certainindividuals to hold cash (because at that level they feel“bearish” of the future of bonds) is exactly equal to theamount of cash available for the speculative-motive.Thus each increase in the quantity of money must raisethe price of bonds sufficiently to exceed the expecta-tions of some “bull” and so influence him to sell hisbond for cash and join the “bear” brigade. If, how-ever, there is a negligible demand for cash from thespeculative-motive except for a short transitionalinterval, an increase in the quantity of money will haveto lower the rate of interest almost forthwith, in what-ever degree is necessary to raise employment and thewage-unit sufficiently to cause the additional cash tobe absorbed by the transactions-motive and the pre-cautionary-motive.

As a rule, we can suppose that the schedule ofliquidity-preference relating the quantity of moneyto the rate of interest is given by a smooth curvewhich shows the rate of interest falling as the quantityof money is increased. For there are several differentcauses all leading towards this result.

In the first place, as the rate of interest falls, it islikely, cet. par., that more money will be absorbed byliquidity-preferences due to the transactions-motive.For if the fall in the rate of interest increases the nationalincome, the amount of money which it is convenient to