Answer to Question #218736 in Macroeconomics for Sayyed mohd arif

Question

The notion of a demand for money may strike you at first glance as bizarre. The demand for
money is the total amount of money that the population of an economy wants to hold. There are
three main reasons to hold money, as opposed to bonds, equity, or other financial asset classes,
Explain in detail.

Answer 1

Transaction Motive: Money is needed to make day-to-day transactions like purchasing goods and services, paying taxes, and dividends.

Precautionary Motive:

some cash is always needed for contingencies. However, such cash can be invested in a short period to provide cash when necessary.

Speculative Motive: The reason for holding cash is to invest in profitable opportunities as they arise. The opportunities cannot be predicted, but speculations can be made on their occurrence.