Answer to Question #284911 in Economics for Bea

Question

•         define the demand for money

•         mention the motives for holding money and the main determinant of each

•         define monetary policy

•         list the market-oriented monetary policy instruments

•         list the non-market-oriented monetary policy instruments

•         define the repo rate

Answer 1

1. The demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits rather than investments.
2. The firm's needs for cash may be attributed to the following needs: Transactions motive, Precautionary motive and Speculative motive. Some people are of the view that a business requires cash only for the first two motives while others feel that speculative motive also remains.
3. Monetary policy is the control of the quantity of money available in an economy and the channels by which new money is supplied.
4. The market-oriented monetary policy instruments are: the reserve requirement, open market operations, the discount rate, and interest on reserves.
5. Most non-marketable securities are government-issued debt instruments. Common examples of nonmarketable securities include U.S. savings bonds, rural electrification certificates, private shares, state and local government securities, and federal government series bonds.
6. Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.