demand for money

what are the 3 motives for demanding money

transactional, precautionary and speculative motives

define transactional motive

holding money for day to day purchases and short-term spending obligations

if people buy more goods and services, what happens to transaction for demand money

it increases

if the price rises due to inflation, what happens to the amount of money needed for transactions

it increases

what is precautionary motive

market participants hold money for financial emergencies

give an example of the precautionary motive

keeping cash available in case you car breaks down or another unexpected expense occurs

define speculative motive

a financial asset motive concerning holding money to avoid capital losses in the bond market

when interest rates are low, why might people hold more money instead of bonds

they may expect interest rates to rise, which would cause bond prices to fall, creating potential capital losses