1. The Speculative Motive: Under this Motive, holding of money involves a loss of interest it would otherwise have earned and so it cost a lot of money to hold money. However, when people prefer holding money to investing it, their liquidity preference is said to be high.
What are the motives of money?
According to Keynes, people hold money (M) in cash for three motives: (i) Transactions motive , (ii) Precautionary motive, and (iii) Speculative motive. The transactions motive for holding cash relates to ‘the need for cash for current transactions for personal and business exchange.
What are the motives behind and entrepreneur holding money?
Keynesians believe that there are three motives for demanding (holding) money: the transactions motive, the precautionary motive, and the speculative motive. The speculative demand for money is inversely related to the interest rate. A fall in the interest rate increases the quantity demanded of money.
What are the 3 motives of holding money?
In The General Theory, Keynes distinguishes between three motives for holding cash ‘(i) the transactions-motive, i.e. the need of cash for the current transaction of personal and business exchanges; (ii) the precautionary-motive, i.e. the desire for security as to the future cash equivalent of a certain proportion of …
What are the 3 motive of holding money?
What are the three main reasons for holding money?
While the Keynesians believe that there are three motives for demanding (holding) money: the transactions motive, the precautionary motive, and the speculative motive. The speculative demand for money is inversely related to the interest rate. A fall in the interest rate increases the quantity demanded of money.
What is the motive for holding cash in a transaction?
Motives for Holding Cash Transaction Motive: The transaction motive refers to the cash required by a firm to meet the day to day needs of its business operations. In an ordinary course of business, the firm requires cash to make the payments in the form of salaries, wages, interests, dividends, goods purchased, etc.
What do you call the desire to hold money?
Demand for money is called liquidity preference and Liquidity preference arises from several motives. Generally it can be classified into three; Transaction Motive, Speculative Motive and Precautionary Motive for holding money. The desire of a person to hold money is called Demand for Money.
Why do people hold money in their hands?
a. The transactions motive: People need to make day-to-day transactions (buy food, Clothes etc.) 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.
