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Liquidity is an attribute to an asset. The more quickly an asset is converted into money the more liquid it is said to be. [1] According to Keynes, demand for liquidity is determined by three motives: [2] the transactions motive: people prefer to have liquidity to assure basic transactions, for their income is not constantly available.
but gives reasons to suppose that demand will nonetheless tend to decrease as r increases. He thus writes liquidity preference in the form L 1 (Y)+L 2 (r) where L 1 is the sum of transaction and precautionary demands and L 2 measures speculative demand. The structure of Keynes's expression plays no part in his subsequent theory, so it does no ...
Speculative demand is the holding of real balances for the purpose of avoiding capital loss from holding bonds or stocks. The net return on bonds is the sum of the interest payments and the capital gains (or losses) from their varying market value. A rise in interest rates causes aftermarket bond prices to fall, and that implies a capital loss ...
A speculative investment -- or "when an investor hopes to profit from a rapid change in the value of an asset," according to SoFi -- can be fairly high risk, unlike traditional investments. Indeed,...
The asset motive for the demand for broader monetary measures, M2 and M3, states that people demand money as a way to hold wealth. While it is still assumed that money in the sense of M1 is held in order to carry out transactions, this approach focuses on the potential return on various assets (including money broadly defined) as an additional ...
In Chapter 15 Keynes offers a new model of liquidity preference. He writes M 1 and M 2 as the amounts of money held in the first case for the transactions and precautionary motives combined, in the second for the speculative motive, and writes L 1 and L 2 as the associated demands. He then writes (on p199)
The Baumol–Tobin model is an economic model of the transactions demand for money as developed independently by William Baumol (1952) and James Tobin (1956). The theory relies on the tradeoff between the liquidity provided by holding money (the ability to carry out transactions) and the interest forgone by holding one’s assets in the form of non-interest bearing money.
October 5, 2024 at 6:03 PM. Tempura / Getty Images. According to recent studies, wealthy millennials are making the same investment mistakes as many of those in older generations did when they ...