FREE IGNOU BECC-133 SOLVED ASSIGNMENT 2023-24
8. Keynesian Theory of Demand for Money: The Keynesian theory of demand for money is based on John Maynard Keynes’ analysis of how individuals hold money as a store of value. According to Keynes, people hold money for three main reasons:
- Transactions Motive: People hold money to facilitate day-to-day transactions.
- Precautionary Motive: People hold money as a buffer against unforeseen expenses.
- Speculative Motive: People hold money in anticipation of future opportunities, such as purchasing assets when prices are expected to drop.
The demand for money is influenced by the interest rate. As the interest rate rises, the opportunity cost of holding money (which doesn’t earn interest) increases, leading to a decrease in the demand for money. Conversely, as the interest rate falls, the demand for money increases.