Match the correct motive (Precautionary, Speculative, or Transactions) for holding money to the following definitions.
Definition
a. The stock of money people hold to pay unpredictable expenses
b. The stock of money people hold to take advantage of future changes in the prices of financial assets other than money
c. The stock of money people hold to pay everyday predictable expenses
Identify the motive for holding money in the following scenario.
Daesun moves to a smaller apartment. Because of the lower monthly rent, he places a larger share of funds from his paycheck in a retirement fund and a smaller share in his savings account. This is an example of a decrease in Daesun's (Precautionary, Speculative, or Transactions) demand for money.
Complete the following statement about the relationship between the interest rate and speculative balances.
As the interest rate falls, the opportunity cost of holding money (rises, falls) , and people (decrease,
