Answered: Definition The stock of money people…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Match the correct motive for holding money to the following definitions.

Definition	Motive
The stock of money people hold to pay everyday predictable expenses
The stock of money people hold to pay unpredictable expenses
The stock of money people hold to take advantage of future changes in the prices of financial assets other than money

Complete the following statement about the relationship between the interest rate and speculative balances.

As the interest rate rises, the opportunity cost of holding money , and people their speculative balances.

Identify the motive for holding money in the following scenario.

Bob recently moved from a commission-based sales job in which his income fluctuated somewhat unpredictably from one month to the next to a salary-based management position where he receives a fixed paycheck each month. His newfound income stability causes him to lower the amount of money he keeps in a savings account to guard against a sudden drop in income. This is an example of a decrease in Bob's demand for money.

Match the correct motive for holding money to the following definitions.
Definition
The stock of money people hold to pay everyday predictable expenses
The stock of money people hold to pay unpredictable expenses
The stock of money people hold to take advantage of future changes in the prices of financial assets
other than money
Motive
Precautionary demand for money
Speculative demand for money
Transactions demand for money
Complete the following statement about the relationship between the interest rate and speculative balances.
As the interest rate rises, the opportunity cost of holding money and people
their speculative balances.
▶
Identify the motive for holding money in the following scenario.
Bob recently moved from a commission-based sales job in which his income fluctuated somewhat unpredictably from one month to the next to a
salary-based management position where he receives a fixed paycheck each month. His newfound income stability causes him to lower the amount of
money he keeps in a savings account to guard against a sudden drop in income. This is an example of a decrease in Bob's
demand for money.

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The demand for money refers to the nature of a person's desire to hold money instead of spending it. The theory of money demand, given by Keynes, states that people hold, or demand, money with three motives, transaction motive, precautionary motive, and speculative motive.

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