Buy custom The demand for money is purely a transactionary demand
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| Topic: |
Business
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| Number of pages / Number of words: |
7 / 1830 |
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The precautionary demand for money allows the individual to cover unforeseen events, such as the car breaking down, a lengthy period off work through illness, or an unexpected redundancy. The higher the income received per time period, the more costly any unforeseen event (e.g. loss of employment) is likely to be, and therefore the greater the precautionary demand for money to hold...
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The higher the income received per time period, the more costly any unforeseen event (e.g. loss of employment) is likely to be, and therefore the greater the precautionary demand for money to hold. As the rate of interest rises, the precautionary demand for money will contract.
Transactions (T) and precautionary (P) demands for money are shown here as inversely related to the rate of interest, with T + P rising as the interest rate falls, and vice versa...
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