Respuesta :
Keynes asserts that the three motives of transactional, preventive, and speculative motives affect the demand for liquidity.
In the notion of liquidity preference, what are the main drivers of the desire for money? Give a brief description of each incentive and indicate which economic aspect is thought to have the most impact.
In accordance with Keynes, the need for liquidity is influenced by three factors: transactional, preventive, and speculative motives. The theory contends that cash is the most widely used liquid asset and thus investments with more liquidity can be quickly sold for their full worth.
- The transaction motive for keeping cash pertains to "the requirement for cash for the current transactions for personal and business exchange" and is closely tied to income level.
- The amount of money requested under the precautionary motive is based on the individual's personal characteristics, such as optimism or pessimism, foresight, etc., as well as the current economic and political conditions. It is intended to cover unforeseen and unpredictable contingencies involving money payments.
- The speculative motive indicates people's desire to hold cash so they are prepared to take advantage of any alluring investment opportunity that requires cash outlay. Interest rates and speculative demand for money are mutually exclusive.
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