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e. In monetary economics, the demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits rather than investments. It can refer to the demand for money narrowly defined as M1 (directly spendable holdings), or for money in the broader sense of M2 or M3. Money in the sense of M1 is dominated as ...
e. In macroeconomic theory, liquidity preference is the demand for money, considered as liquidity. The concept was first developed by John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936) to explain determination of the interest rate by the supply and demand for money. The demand for money as an asset was ...
In Keynes's more complicated liquidity preference theory (presented in Chapter 15) the demand for money depends on income as well as on the interest rate and the analysis becomes more complicated. Keynes never fully integrated his second liquidity preference doctrine with the rest of his theory, leaving that to John Hicks: see the IS-LM model ...
e. The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic model which is used as a pedagogical tool in macroeconomic teaching. The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the " investment – saving " (IS) and " liquidity preference ...
A liquidity trap is a situation, described in Keynesian economics, in which, "after the rate of interest has fallen to a certain level, liquidity preference may become virtually absolute in the sense that almost everyone prefers holding cash rather than holding a debt (financial instrument) which yields so low a rate of interest." [1]
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 ...
Cambridge theory argued that people hold money for two reasons: to facilitate transactions and to maintain liquidity. In later work, Keynes added a third motive, speculation, to his liquidity preference theory and built on it to create his general theory. [19] In 1898, Knut Wicksell proposed a monetary theory centered on interest rates.
Money portal. v. t. e. An economic bubble (also called a speculative bubble or a financial bubble) is a period when current asset prices greatly exceed their intrinsic valuation, being the valuation that the underlying long-term fundamentals justify. Bubbles can be caused by overly optimistic projections about the scale and sustainability of ...