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G4 Banking Assignment
G4 Banking Assignment
Overview
Before we start the article of money demand process, lets
look money and its functions in a general way.
1) Transaction Motive
2) Precautionary motive
3) Speculative motive.
1. Transaction Motive
3. Speculative Motive
Interest rate
Money Demand
Real GDP
Expectations
The speculative demand for money is based on
expectations about bond prices. All other things
unchanged, if people expect bond prices to fall, they will
increase their demand for money. If they expect bond
prices to rise, they will reduce their demand for money.
Conclusion
All in all demand for money is the desire of people in a
population need or want to hold money. There are 3
motives of holding money which are transaction,
precautionary, and speculative motive. When interest
rates increases individuals will choose to hold less money,
as the interest rates fall individuals will choose to hold
more money, and is vice versa. And finally, other
determinants of demand money are expectations, real
GDP, and the price level.