The three motives of demand for money.
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
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
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.
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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Chapter 26 Solutions
Economics For Today
- Allocative efficiency WITHIN the health care sector refers to What mix of nonmedical and medical goods and services should be produced in the macro-economy What mix of medical goods and services should be produced in the health economy What specific health care resources should be used to produce the chosen medical goods and services Who should receive the medical goods and services that are producedarrow_forwardProduction efficiency is most concerned with Choice of inputs in production process Quantity of outputs resulting from the production process The technological process of production All of the abovearrow_forwardChoose all of the following that are assumed to be constant while constructing the production possibilities curve Technology Precise mix of inputs Institutional arrangements like judicial protection of business contracts Outputsarrow_forward
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- Over the last few decades out-of-pocket costs have formed a DECLINING proportion of total consumer expenditure on medical care True Falsearrow_forwardCost benefit analyses often assumes the following about consumers EXCEPT Consumers have clear preferences among choices they are exposed to Consumers purposely choose actions that result in higher satisfaction Consumers factor in uncertainty of outcomes in their decision-making regarding net benefits and costs Consumers lack information about attributes of market goods that are necessary for ranking their choice setarrow_forwardThe TRUE relationship between MARGINAL utility and an individual’s stock of health can be best described as a scatter plot True Falsearrow_forward
- Many health economists believe that the United States spends its MARGINAL dollars on healthcare in a highly wasteful manner. This view is also known as “flat of the curve” medicine. True Falsearrow_forwardIncreasing provision of out-of-pocket cost calculators by major insurers are attempts to REDUCE price transparency for consumers True Falsearrow_forwardA price hike for medical goods/services that have an inelastic (i.e., <1) own-price elasticity of demand will tend to yield lower revenues True Falsearrow_forward
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning