to meet any urgent or unexpected expenditure needs, or to “snatch a bargain” that might be taken by someone else. b. Precautionary motive: In addition to money held for making transactions, people sometimes hold money for precautionary purposes as well: i.e. Generally, then, money demand Md increases with income levels and falls with interest rates. The first two motives provide yield of convenience and certainty. Instead of preferring liquidity if the money was invested it would earn interest. c. Assets motive (also called speculative or investments motive): In addition to a and b, people might wish to keep some cash to switch between various investments. So consider a person who owns some land, holds some bonds, and has some stock market investments. How To Find The Gmail / Google Account Creation Date? Thus the demand for money we refer to is the demand for real money.
Hi, Your are most welcome and feel free to share your comment(s). Everybody maintains cash balance to meet the daily transaction to pay to the creditor, to buy goods and services, pay rent and to invest on business etc.
a. The transactions motive: People need to make day-to-day transactions (buy food, Clothes etc.) (i) The Transaction Motive: People like to keep their money in liquid form (cash) to meet their day-to-day expenses during the period between the receipt and spending of their money.
The transactions motive for the demand for M1 (directly spendable money balances) results from the need for liquidity for day-to-day transactions in the near future. Transaction Motive Peoples keep cash for the transaction motive.
Assuming no plastic money, an individual’s transactions demand for money is likely to increase with his/her income, as s/he is more likely to make more transactions if he feels richer. Precautionary demand – money needed for financial emergencies. The demand for money is the relationship between the quantity of money people want to hold and the factors that determine that quantity. Three Reasons Why People Hold Money Economists have identified three broad motives: a. its various instruments.
Whether we agree or not there is no one whose one of the main concerns isn't money.
I'm being liked and followed by over 6000+ readers and well wishers on various social media networks. Spam comments will be deleted just after our review.Thank You For Being With Us. But then there is also the opportunity cost of money. We will try to response your comment(s) as soon as possible.Please DON'T spam here. Lets explain the motives for holding money. I am really impressed with this share! what are th reasons behind of people to holding mony, i aslo wanna noe three factors that motivates people to hold money,,, or its just the same with the above motives. Of course, the increasing Spread of plastic money (credit cards) has considerably reduced the transactions incentive for holding money. The third motive provides money yield.
what the central bank controls through (adsbygoogle = window.adsbygoogle || []).push({}); Copyright 2020 © LearningAll.com All rights reserved. Keep sharing your thoughts! its actually a question, explain the factors that affects money demand.
Thus, speculative demand for money is interest- elastic and is expressed as M 2 = f(r), where M 2 is the speculative demand for money and fir) denotes it to be the function of the rate of interest.
What Are Three Types Of Motives?
Would you like to be my friend? Transaction demand for money – the money we need to purchase goods and services in day to day life. Contrast this with what have been talking about earlier: nominal money supply – i.e. Whether nominal and real money supply is equal or not depends much on the assumption regarding prices. The logic of these conclusions about the money people hold and interest rates depends on the people’s motives for holding money. How To Login bKash App Without Inserting Registered SIM Card, Equality Of Demand And Supply Of Money/ Determination Of Interest Rate. The transactions motive: People need to make day-to-day transactions (buy food, Clothes etc.) The demand for money is affected by several factors, including the level of income, interest rates, and inflation as well as uncertainty about the future. 1. By education, I'm having MBA degree and by profession, I'm a Professional photographer and Photoshop Expert, SEO consultant and Blogger. The three motives and corresponding demands for money are explained briefly first, to be followed by somewhat extended discussion of the individual components of the demand for money. and therefore need to hold cash in their hands. It is somehow one kind of biological motives. Transaction demand for money. And so the demand for money is the balance between these two motives. Asset motive/speculative demand – when people wish to hold money rather than buy assets/bonds/risky investment. Money is a medium of exchange and this function of it’s gives rise to the transactional motive for demand for money. Your post on three motives for holding money could really bring some interesting facts. Keynes has termed demand for money as liquidity preference.
If you like this post, subscribe your email to get latest posts in your Email, What Are The Three Types Of Motives For Holding Money, Four Different Approaches To The Definition Of Money. The way in which these factors affect money demand is usually explained in terms of the three motives for demanding money: the transactions, the precautionary, and the speculative motives. In this situation some spare cash in hand would have helped him acquire the equity asset. The assets demand for money is likely to increase with income (for reasons similar to those for a and b) and decrease with interest rates (because the interest rate is the opportunity cost of holding cash in your hands). and therefore need to hold cash in their hands.Of course, the increasing Spread of plastic money (credit cards) has considerably reduced the transactions incentive for holding money. Let’s say he spots a good investment opportunity on the stock market but doesn’t have instant buyers for the land or bonds he holds. This need arises when income is received only occasionally (say once per month) in discrete amounts but expenditures occur continuously.
If prices are assumed fixed, then the two are equal, otherwise not.
Again, precautionary demand for money is likely to increase with income. Note that we refer to real income (which measures purchasing power) and real interest rates (which measure real return on invested money), and not their nominal counterparts.
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