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Explain Demand for Money and three motives for holding money

Demand for Money

Definition: The demand for money is the total amount which all individuals in the economy wish, for various reasons, to hold. In other words, the demand for money refers to the desire to hold money; that is, keeps one’s resources in liquid form rather than spending it. The demand for money in economics, is known as Liquidity Preference.

Explain Two Motives for Holding Money?

Lord Keynes postulated that there are three motives for holding money

  1. Transactionary Motives: People desire to hold money for day to day transaction or current expenditure. Household needs to hold money in order to cater for the interval between the receipt of incomes and their expenditure.
  2. Precautionary Motives: This is when people demand for money in order to meet up with unforeseen circumstances or unexpected expenditures. These may include sickness, unexpected visitors.
  3. Speculative Motives: This motive is specifically a business motive and refers to the desire to hold cash balance in order to embark on speculative dealings. In the Bond Market the Desire to Hold Money for Specific Purposes is Elastic
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