The three motives of demand for money.

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Answer 1

Question

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

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Short Description Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 800 billion dollars with an increment of 40 billion dollars, and the y-axis is scaled from 30 to 150 units with an increment of 5 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (160, 70)Point 2 at (720, 140)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (80, 110)Point 2 at (640, 40)A vertical Long-run Aggregate Supply, LRAS with two endpoints:Point 1 at (400, 145)Point 2 at (400, 30)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (720, 60)Point 2 at (160, 130)Two Reference Points:Lines AS, AD, and LRAS intersect at (400, 100)Lines AS and AD1 intersect at (280, 85) a. How much does aggregate demand need to change to restore the…

Fiscal Policy Graph Details Shown is a Fiscal Policy diagram with the variable Real GDP (billions of dollars) on the x-axis and the variable Price Level on the y-axis. The x-axis is scaled from 0 to 1000 billion dollars with an increment of 50 billion dollars, and the y-axis is scaled from 0 to 180 units with an increment of 10 units. Object Details On the graph we have:Four Line Objects:An upward sloping Aggregate Supply, AS line with two endpoints:Point 1 at (200, 40)Point 2 at (800, 160)A downward sloping Aggregate Demand, AD line with two endpoints:Point 1 at (200, 160)Point 2 at (800, 40)A downward sloping Aggregate Demand, AD1 line with two endpoints:Point 1 at (350, 170)Point 2 at (900, 60)A vertical Long-run Aggregate Supply, LRAS line with two endpoints:Point 1 at (500, 170)Point 2 at (500, 0)Two Reference Points:Lines AS and AD1 intersect at (600, 120)Lines AS, AD, and LRAS intersect at (500, 100) a. How much does aggregate demand need to change to restore the…

a. How much does aggregate demand need to change to restore the economy to its long-run equilibrium? $ billion b. If the MPC is 0.6, how much does government purchases need to change to shift aggregate demand by the amount you found in part a? $ billion Suppose instead that the MPC is 0.95. c. How much does aggregate demand and government purchases need to change to restore the economy to its long-run equilibrium? Aggregate demand needs to change by $ billion and government purchases need to change by $ billion.

Answer 2

Question

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

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Answer 3

Question

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

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Answer 4

Question

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

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Answer 5

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

Answer 6

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

Answer 7

Chapter 16, Problem 1SQP

To determine

The three motives of demand for money.

Answer 8

Expert Solution & Answer

Explanation of Solution

People hold money mainly for transaction purpose, precautionary purpose, and speculative purpose. The amount of holding money depends not only on the rate of interest but also on the price. Demand for money and interest rate are inversely related because when the rate of interest increases, the opportunity cost of holding money also increases and vice versa. If the price increases, people will hold more money and if the price decreases, people will hold less amount of cash.

Option (a):

The demand for money for the purpose of three motives (transaction motive, precautionary motive, and speculative motive) is positively related with the income. When the income level increases, the transaction demand for money, precautionary demand for money, and speculative demand for money also increase and vice versa.

Option (b):

The demand for money for transaction motive and precautionary motive is positively related with the interest rate. Speculative motive is negatively related with the interest rate. The purchase of bonds and other assets are related with the transaction motive. Thus, decreasing the interest rate on bonds and other assets leads to reduce the demand for money to spend on (purchase) bonds and other assets.

Option (c):

When an automated teller machine is installed near a person, the demand for holding money for transaction and precautionary motive decreases because money is available at any time and hence, there is no necessity to keep money and also, the person gets an amount of interest.

Option (d):

Demand for money and bond price are positively related. If there is a higher rate of interest, the opportunity cost of money holding declines and hence, people hold less amount of money and thus, the bond price decreases. If the interest rate falls, the price of bond increases.

Option (e):

People always hold money mainly for transaction motive, precautionary motive, and speculative motive. When a person gets income on weekly basis instead of monthly basis, then it is not necessary to keep more money. Thus, the transaction demand for money and precautionary demand for money decrease.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Economics Concept Introduction

Demand for money: Demand for money refers to the amount of money that households and firms desire to hold at different nominal interest rates.

Opportunity cost: Opportunity cost refers to the benefits given up in the process of obtaining some other benefits.

Transaction demand for money: Transaction demand for money is the holding of money to meet the everyday expenses of a person.

Precautionary demand for money: Precautionary demand for money is the amount of money held by a person for contingency purpose.

Speculative demand for money: Speculative demand for money is the money held by people to take advantage from change in the price of bonds and other assets.

Answer 12

Ch. 16.3 - Prob. 1.1YTE Ch. 16.3 - Prob. 2.1YTE Ch. 16.3 - Prob. 2.2YTE Ch. 16.A - Prob. 1SQP Ch. 16.A - Prob. 2SQP Ch. 16.A - Prob. 3SQP Ch. 16.A - Prob. 4SQP Ch. 16.A - Prob. 1SQ Ch. 16.A - Prob. 2SQ Ch. 16.A - Prob. 3SQ

The three motives of demand for money.

The three motives of demand for money.

Explanation of Solution

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