What Are Motives In Demand Of Money In Keynes's Liquidity Prefrence Thoery Of Intersest?


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Sadia Batool Profile
Sadia Batool answered
Transactoin motive:  People need to hold cash for various motives day to day transactions i.e. To buy goods and services. Transaction motive is sub divided into two motives i.e. Income motive and business motive. Under income motive, people hold cash to bridge the interval between recieplts of income and their expenditure. Under business motive, the businessman hold some cash to meet their running expenses of production.    Example:  A person earning Rs 5000 per month meet the expenditure for whole month out of this income. So, he must always have some each with him. The amount held under income motive firstly, on the size of income and secondly, on the length of interval after which income is received.    Precautionary motive:  This motive refers to the desire to hold money to meet the emergencies and unforeseen expenditures e.g. Illness, accidents, unemployment and to face uncertain needs in business. They demand for money is effected by the level of income, business, social and political conditions and personal habits. Money held under these motives is rather like water kept in a tank.          Speculative motives:  They refer to desire of people to keep assets in liquid form to get advantage of the changes in prices of bonds, securities, etc. In the stock exchange market. Liquid assets held under these motives depend upon the rate of interest. At a higher rate of interest, less amount of money will be kept for it.
Matilda Kunher Profile
Matilda Kunher answered

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