Explain speculative and transaction demands for money.
Explain speculative and transaction demands for money.
In Keynesian economics, there exists a need for money for investment purposes. Speculative demand for money is the desire to have money for transactions other than those necessary for living, namely for investment and profitable purposes. Speculative demand is one of the three desires governing demand for money, the others being precautionary demand and transactions demand.
Transaction demand: This is the amount of money needed to cover the needs of an individual, firm, or nation. That is, transaction demand for money is a measure of how much of money as cash balances is needed in order to purchase goods and services for general usage. Generally speaking, if an economy is healthy, there is a high transaction demand for money because people demand more goods and services. Conversely, if an economy is in trouble, people demand fewer goods and services.
In Keynesian economics, there exists a need for money for investment purposes. Speculative demand for money is the desire to have money for transactions other than those necessary for living, namely for investment and profitable purposes. Speculative demand is one of the three desires governing demand for money, the others being precautionary demand and transactions demand.
Transaction demand: This is the amount of money needed to cover the needs of an individual, firm, or nation. That is, transaction demand for money is a measure of how much of money as cash balances is needed in order to purchase goods and services for general usage. Generally speaking, if an economy is healthy, there is a high transaction demand for money because people demand more goods and services. Conversely, if an economy is in trouble, people demand fewer goods and services.
