Question

Which of the following scenarios is consistent with the speculative motive for the demand for money?

Group of answer choices

Afraid of losing his job, Jacob decides to start saving money.

John decides to keep money in his checking account rather than a savings account because the interest rate is so low.

Mei sets aside a portion of her income each month into a health savings account because she believes that she may need expensive surgery in the future.

Mary withdraws funds from her retirement account to help her deal with price inflation.

Answer 1

The speculative motive for the demand of money arises when investing money in some asst or bond is considered riskier than simply holding the money. It is also affected by the expected rise or fall of the future interest rates and the inflation of the economy. In this case, due to speculations about the current market tendencies, the investor withdraws the money and keeps it as a holding rather than investing them in an economy which is unstable due to many economic failure like inflation. Here, holding a considerable amount of money gives an opportunity to the investor to deposit them in future and make gains out of the future market. This is considered to be riskier as the investment practices here depends on the speculations of the future market which always remains unpredictable.

                                    In the above options, the final one where Mary is withdrawing funds from the retirement account due to price inflation suggests a speculative tendency. Here, the market under process is expected to have been affected by inflation which necessarily leads to increased pricing and decreased value of money. Thus withdrawal of the invested money helps the investor here to deal with the current economic problem and also at the same time gives an opportunity to invest the same amount back in to the economy when all the ill- effects under process vanishes from the economy. Hence the capital loss arising from the current inflationary trend could be avoided.