Macroeconomics: Theory and Policy

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 ...