1.1 Introduction According to Keynesian money demand theory considers money as a store in value in addition to a medium of exchange. The store in value function of money signifies that money is an asset in which a person can hold wealth i.e. money is a part of wealth. Keynes combined all assets that were alternatives to money into one category, which he terms ‘bond’. According to him, people either hold money in cash or purchase bonds. Selling or purchasing of bonds depends on the market rate of interest. Thus Keynes introduced a new demand function in which demand for money depends on the market rate of interest. This is popularly known as speculative demand for money. On the other hand, he also believes classical money demand function and he says that people hold money for three motives. They are: Transaction motive Precautionary motive Speculative motive 1. Transaction demand for money The first motive Keynes considered was transaction motive. According to this m...
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