Question

identify and discuss various types of demand for money.

Answer 1

There are three types of demand for money are:

1.Transaction demand for money-This demand arises because people need money to carry out transactions for goods and services.Money would be demanded because money is mandatory to carry out transactions.Total transactions increases when income increases of an economy,which increases transaction demand for money.

2.Precautionary-People demand money as a precaution against any future unforseen circumstance.Unexpected expenses such as medical expenses require immediate payment and money should be available for such situations.

3.Speculative-Money is an asset aand the demand for an asset depends upon interest rate and opportunity cost of holding that asset.Generally,holding money in the form of cash provide no rate of return and the value even depreciates in the future.The speculative demand arises when holding money has less risks associated with it than investing it in any other asset.

Please rate if you like the answer.Leave a comment in case of a query.