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Macroeconomics: Theory and Policy by Vanita Agarwal

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14

Demand for Money: The Keynesian Approach

After studying this topic, you should be able to understand

  • The transactions demand for money is the money demanded by the public for carrying on its various current transactions.
  • The precautionary demand for money is the demand for cash by the public for contingencies, which may involve unexpected expenditures and opportunities.
  • The existence of an uncertainty about the future gives rise to the speculative demand for money.
  • In Keynes’ theory, the rate of interest is a monetary phenomenon determined by the equality between the demand for and supply of money.
  • Given the demand for money, an increase in the supply of money leads to a decrease in the interest rate and vice versa.
  • There can occur a change ...

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