The returns from holding bonds has two components, viz., the interest payments and the possibility of a capital gain or loss.If the expected loss is greater than the interest payments the net return is negative and the individual concerned will hold no bonds, only money.Keynes argued that there are three motives for holding money.
The returns from holding bonds has two components, viz., the interest payments and the possibility of a capital gain or loss.If the expected loss is greater than the interest payments the net return is negative and the individual concerned will hold no bonds, only money.Keynes argued that there are three motives for holding money.Tags: Critical Thinking Skills ExercisesPersonal Essay LessonsKennedy Profiles In Courage EssayHosting Business PlanTransistion Words For EssaysSsat Essay PromptsNursing School Application EssayTushnet An Essay On RightsTerm Paper On The Watts RiotsExamples Of Mla Research Papers
In fact, the rate of interest does the job of equating the quantity of money demanded to the available supply, i.e., it does the job of producing monetary equilibrium. 3 we see how the rate of interest ensures monetary equilibrium.
The money supply is fixed by the central bank at Mo.
The motives lying behind liquidity preference (or why people desire to hold money) can be analysed as follows: (1) The transactions motive: Liquid balances are necessary to bridge the interval between receipt of income and outlay. A man who gets his wages once a month must keep enough cash in his hands or in his current account to carry on his day-to-day purchases between one pay day and another.
The same considerations apply to businesspeople and industrialists.
Particularly, banking industry plays an important role in promoting sustainable development of the world.
In this respect the concept of green banking has emerged as an important subject and is recognized as a tool to address the issues confronting the sustainable development and to create awareness among the people on the environmental responsibility.In this manner, Keynes argued that in aggregate the demand for money for speculative purposes, L(r), would be inversely related to the interest rate, r In contrast, the amount of money demanded for transactions and precautionary purposes, k PY, was determined by the individuals’ level of income Y and the general price level (P).Thus, in Keynes’ theory the demand for money is expressed as: Md = k PY L (r) where Md is the total demand for money, k PY is transactions and precautionary demand and L(r) is speculative demand.But those held for the speculative purposes are particularly sensitive to it.The demand for money depends on three main factors: national income, the price level and the rate of interest.Money kept as a store of wealth comes within this category.(Keynes) Balances held from the transactions or the precautionary motives are little affected by the rate of interest.Here Y is national income, P is the price level and k is the fraction or proportion of income held in the form of liquid balance (0 If V increases, k remaining the same, people will require more money to spend.Likewise, if P increases people will require more money to buy the same amount of goods and services.They also must keep some money in hand for their day-to-day transactions.The amount of money, required for this purpose, depends upon the general level of business activity.