Economics Today: The Macro View (19th Edition) (Pearson Series in Economics)
Economics Today: The Macro View (19th Edition) (Pearson Series in Economics)
19th Edition
ISBN: 9780134478760
Author: Roger LeRoy Miller
Publisher: PEARSON
Question
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Chapter 16, Problem 16.1LO
To determine

The key factors influencing quantity of money that people desire to hold.

Expert Solution & Answer
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Explanation of Solution

The factors affecting demand for money are as follows:

  • The prevailing rates of interest on savings/deposits.
  • The expected monetary transactions in present and future.
  • The speculating motive of holding money.
  • The changes in Gross Domestic Product (GDP).
  • The anticipated inflation rate.
  • The precautionary motive of holding money.

There are 3 motives for holding money, these are:

  • Transaction Motive: It is regarding day to day transactions of sale and purchase of goods and services.
  • Speculative Motive: It is related to the future anticipations regarding increase or decrease in prices, the change in interest rates, the inflation rate, etc.
  • Precautionary Motive: It is related with safeguarding the future.

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