(a) Define money. [2 marks] (b) State the three motives for holding money. [6 marks]
(a) Define money. [2 marks]
(b) State the three motives for holding money. [6 marks]
(c) Mention two determinants each of the motives for holding money. [12 marks
Explanation
(a) Money is anything that is generally acceptable in a given community as a means of payment for goods and services and for the settlement of debts.
(b) The three motives for holding money are:
(i) Transactions motive: a certain amount is kept in hand for daily requirements such as for food, transport, etc.
(ii) Precautionary motive: Consumers sometimes hold cash in reserve in case an unexpected payment has to be made e.g. medical expenses.
(iii)Speculative motive: Holding money to take advantage of investment opportunities in securities e.g. bonds and shares.
(c) Determinants of the motives are:
Transactions motive:
(i) size of income
(ii) interval between wage payments.
(iii) availability of credit.
(iv) family size.
(v) the rate of interest.
(vi) the status/life style.
(vii) the general price level.
Precautionary motive:
(i) size of income
(ii) interval between wage payments.
(iii) availability of credit.
(iv) family size.
(v) the rate of interest.
(vii) perception of risk.
(vii) availability of social insurance.
Speculative motive:
(i) the rate of interest
(ii) the degree of risk aversion
(a) Money is anything that is generally acceptable in a given community as a means of payment for goods and services and for the settlement of debts.
(b) The three motives for holding money are:
(i) Transactions motive: a certain amount is kept in hand for daily requirements such as for food, transport, etc.
(ii) Precautionary motive: Consumers sometimes hold cash in reserve in case an unexpected payment has to be made e.g. medical expenses.
(iii)Speculative motive: Holding money to take advantage of investment opportunities in securities e.g. bonds and shares.
(c) Determinants of the motives are:
Transactions motive:
(i) size of income
(ii) interval between wage payments.
(iii) availability of credit.
(iv) family size.
(v) the rate of interest.
(vi) the status/life style.
(vii) the general price level.
Precautionary motive:
(i) size of income
(ii) interval between wage payments.
(iii) availability of credit.
(iv) family size.
(v) the rate of interest.
(vii) perception of risk.
(vii) availability of social insurance.
Speculative motive:
(i) the rate of interest
(ii) the degree of risk aversion