What motives did Keynes think determines money demand?

What motives did Keynes think determines money demand?

In the latter, Keynes formally defined three motives to demand money: (i) the transactions motive, comprising the income motive and the business motive; (ii) the precautionary motive; and (iii) the speculative motive. velocity of circulation of money.

What are the three Keynesian motives for holding money quizlet?

According to Keynes, people hold money (M) in cash for three motives: the transactions, precautionary and speculative motives.

What are the four factors that determine money demand?

Factors such as income, interest rate, price level, deposit rate, wealth, required reserve, individual preference, payment habit and brokerage fee/risk, all determines the desire of people to hold cash (demand for money).

What are the reasons why Keynes thought velocity could not be treated as a constant?

Answer: He argued that demand for money is a choice between holding cash and buying bonds. Precautionary motive, transaction motive and speculative motive. Keynes believed that demand for money depends on the interest rate and income and therefore velocity could not be treated as constant.

What does Keynes liquidity preference theory predict about the relationship?

What does​ Keynes’s liquidity preference theory predict about the relationship between interest rates and the velocity of​ money? As interest rates​ rise, people will reduce their money holdings and therefore velocity will rise.

What is K in quantity theory of money?

The letter k thus indicates the proportion of the total value of all monetary transactions that the public chooses to hold in cash balances; and thus it tells us the necessary amount of M that is required for that level of P.T (total spending).

What are the reasons for demand for money?

A transactions-related reason – People need money on a regular basis to pay bills and finance their discretionary consumption; A precautionary reason, as an unexpected need, can often arise; and. A speculative reason if they expect the value of such money to increase versus other asset classes.

What does Keynes say about velocity of money demand?

Keynes’s analysis of the speculative demand for money thus suggests that velocity will be far from constant; rather, it will undergo substantial fluctuations. 13. According to the portfolio theories of money demand, what are the four factors that determine money demand?

What is the Keynesian theory of the demand for money?

What is known as the Keynesian theory of the demand for money was first formulated by Keynes in his well-known book, The Genera’ Theory of Employment, Interest and Money (1936). It has developed further by other economists of Keynesian persuasion. In understanding Keynes’ theory two questions need to separate. One is why is money demanded?

What causes velocity of money to fluctuate?

Furthermore, as the answer to problem 11 suggests, changes in people’s expectations about what the normal level of interest rates are will cause money demand and hence velocity to fluctuate. Keynes’s analysis of the speculative demand for money thus suggests that velocity will be far from constant; rather, it will undergo substantial fluctuations.

How did Keynes derive the aggregate speculative demand curve for money?

At a still lower rate of interest (and still higher bond price), Tie more bulls will become bears and the speculative demand for higher still. Thus, Keynes derived a downward-sloping aggregate speculative demand curve for money with respect to the “a rate of interest, as shown in Figure 11.2.