Answer to Question #240392 in Economics for Abo

Question

Explain the demand for money in an economy like South Africa

Answer 1

The demand for money is the need for a certain supply of money. It is defined as the amount of means of payment that the public and firms want to keep in liquid form, that is, in the form of cash and check deposits.

The demand for money is usually driven by three motives:

the motive for keeping money to use it as a means of payment when purchasing goods and services, i.e. when making transactions;

the motive for keeping money as a potential means of implementing unplanned expenses in the future (precautionary motive);

the motive for keeping money in order to avoid the risk of financial losses arising from an increase in interest rates and the presence of securities as financial assets (speculative motive).