Demand and supply of money

Commerce study Manual STUDY MANUAL|PDF NOTES|SYLLABUS|REVISION

Demand for money refers to the tendency or desire an individual or general public to hold onto money instead of spending it.it is also known as liquidity preference.money can be hold individuals in various forms and these include;currency notes and coins,securities e.g. treasury bills and bonds,demand deposits held in current accounts of banks,time deposits held in fixed deposit accounts.

DEMAND FOR MONEY(DESIRE TO KEEP MONEY INSTEAD OF ASSETS)DEPENDS ON THREE MOTIVES.

  1. The transaction motive-here one holds money with a motive of meeting normal daily expenses e.g. buying food,entertainment ,paying wages,postage,traveling,buying raw materials etc
  2. The precautionary motive-this is where people tend to hold money to meet expenses that might occur unexpectedly or emergencies e.g. sickness,accident,or loss of property through theft.it is obvious that optimistic and risk takers  will keep less money while pessimistic /risk averse will keep more money.
  3. The speculative motive.money may be held to be used in future especially when people anticipate that the prices of goods and services will be lower than they are presently and one plans to invest in opportunities that will bring more gains/returns. such money is said to be held in a speculative motive.money held for this purpose depends on levels of income and how optimistic/pessimistic people are about future happenings.



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