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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 ...
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.
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 a ...
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 ...
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.
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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 ...