Liquidity preference refers to the desire to hold money rather than
other forms of wealth such as stocks and bonds. Liquidity preference
can be thought of as stemming from the following sources:
(i) The precautionary motive
This relates to the factor that causes people
or firms to hold a stock of money in order to finance unforeseen
expenditures such as illness or a car breakdown. These aspects of
demand for money is also likely to depend on the level of money
income. It may, in addition, be influenced by the rate of interest.
(ii) The speculative motive
This relates to the reason which causes people
or firms to hold money in the belief that a capital gain or the avoidance
of a loss can be achieved by doing so. Thus, for example, when the
price of a bond falls, the attraction of holding them increases since
people will expect their price to rise again such that anyone owing
them can make a capital gain. When the price of bonds is high, on the
other hand, they will believe that their price could fall and will
therefore hold more money.
(iii) Transactionary demand
This relates to the holding of cash by people or firms in order to
finance foreseeable expenditures. The amount of money held for
this purpose depends on the individuals money income, and
institutional arrangements such as how frequently the individual is paid.
Dullayo answered the question on September 18, 2020 at 19:17
-
In the context of international trade explain briefly the concept of comparative advantage with specialization
(Solved)
In the context of international trade explain briefly the concept of comparative advantage with specialization.
Date posted:
March 20, 2019
.
Answers (1)
-
Distinguish between a trade-off and an opportunity cost in macroeconomic theory.
(Solved)
Distinguish between a trade-off and an opportunity cost in macroeconomic theory.
Date posted:
March 18, 2019
.
Answers (1)
-
State the factors that a business firm should consider while developing an advertising policy
(Solved)
State the factors that a business firm should consider while developing an advertising policy
Date posted:
February 7, 2019
.
Answers (1)
-
One of the determinants of demand for a commodity is advertising
Explain the extent to which advertising influences demand
(Solved)
One of the determinants of demand for a commodity is advertising
Explain the extent to which advertising influences demand
Date posted:
February 7, 2019
.
Answers (1)
-
Compute the market equilibrium price (Px) and quantity (Qx)
(Solved)
Compute the market equilibrium price (Px) and quantity (Qx)
Date posted:
February 7, 2019
.
Answers (1)
-
Determine the market demand and market supply functions for commodity x.
(Solved)
Determine the market demand and market supply functions for commodity x.
Date posted:
February 7, 2019
.
Answers (1)
-
In a perfectly competitive market the average revenue and average cost functions are:
Based on the...
(Solved)
In a perfectly competitive market the average revenue and average cost functions are:
Based on the given functions, determine: The level of output at which the firm break-evens
Date posted:
February 7, 2019
.
Answers (1)
-
In a perfectly competitive market the average revenue and average cost functions are:
(Solved)
In a perfectly competitive market the average revenue and average cost functions are:
Based on the given functions, determine: Fixed and Variable cost functions
Date posted:
February 7, 2019
.
Answers (1)
-
Make a distinction between fixed and variable costs of production. Give examples of each.
(Solved)
Make a distinction between fixed and variable costs of production. Give examples of each.
Date posted:
February 7, 2019
.
Answers (1)
-
Write brief notes on Isoquants.
(Solved)
Write brief notes on Isoquants.
Date posted:
February 7, 2019
.
Answers (1)
-
Write brief notes on Producer's surplus
(Solved)
Write brief notes on Producer's surplus
Date posted:
February 7, 2019
.
Answers (1)
-
Write brief notes on Exchange rate
(Solved)
Write brief notes on Exchange rate
Date posted:
February 7, 2019
.
Answers (1)
-
Write brief notes on Choice , Scarcity and opportunity cost.
(Solved)
Write brief notes on Choice , Scarcity and opportunity cost.
Date posted:
February 7, 2019
.
Answers (1)
-
What are the main problems associated with National Income Accounting in developing countries?
(Solved)
What are the main problems associated with National Income Accounting in developing countries?
Date posted:
February 7, 2019
.
Answers (1)
-
The Economic Advisory Department of Exam land has estimated that its country?s marginal propensity to consume equals 0.6, investment in millions of shillings equals 2,000,...
(Solved)
The Economic Advisory Department of Exam land has estimated that its country‟s marginal propensity to consume equals 0.6, investment in millions of shillings equals 2,000, Government spending 8,000, autonomous consumption 10,000 and net exports 1,000.
If the currency of Exam land depreciated, what would likely happen to the National Income? Why?
Date posted:
February 7, 2019
.
Answers (1)
-
The Economic Advisory Department of Exam land has estimated that its country?s marginal propensity to consume equals 0.6, investment in millions of shillings equals 2,000,...
(Solved)
The Economic Advisory Department of Exam land has estimated that its country‟s marginal propensity to consume equals 0.6, investment in millions of shillings equals 2,000, Government spending 8,000, autonomous consumption 10,000 and net exports 1,000
Calculate the level of equilibrium of National Income for this economy
Date posted:
February 7, 2019
.
Answers (1)
-
Using separate diagrams, illustrate and explain the substitution and income effects of a price fall for both inferior and giffen goods
(Solved)
Using separate diagrams, illustrate and explain the substitution and income effects of a price fall for both inferior and giffen goods
Date posted:
February 7, 2019
.
Answers (1)
-
Differentiate between inferior and giffen goods.
(Solved)
Differentiate between inferior and giffen goods.
Date posted:
February 7, 2019
.
Answers (1)
-
Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per...
(Solved)
Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per unit respectively. The consumer‟s monthly income is Sh. 12,000. He is satisfied with various combinations of X and Y but prefers to spend his income in equal proportions on the two commodities, that is, at a ratio of 1:1 to maintain his level of satisfaction.
What is the effect of an increase in the consumers income from Sh. 12,000 to sh. 24,000 per
month?
Date posted:
February 7, 2019
.
Answers (1)
-
Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per...
(Solved)
Assume a consumer spends all his income in the purchase of two goods X and Y whose prices are Sh. 30 and Sh. 20 per unit respectively. The consumer‟s monthly income is Sh. 12,000. He is satisfied with various combinations of X and Y but prefers to spend his income in equal proportions on the two commodities, that is, at a ratio of 1:1 to maintain his level of satisfaction.
Using clearly labeled diagram; Show the relevant budget line and indifference curves indicating the equilibrium position of
the consumer.
Date posted:
February 7, 2019
.
Answers (1)