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Which of the following is not a component of money demand? a

Economics Nov 25, 2020

Which of the following is not a component of money demand?

a.

Aggregate demand.

b.

Speculative demand.

c.

Precautionary demand.

d.

Transactions demand.

Expert Solution

Answer :

a. Aggregate Demand.

The demand for money refers to how much assets individuals wish to hold in the form of money (as opposed to illiquid physical assets.) It is sometimes referred to as liquidity preference. The demand for money is related to income, interest rates and whether people prefer to hold cash(money) or illiquid assets like money.

Types of demand for money:

Transaction demand – money needed to buy goods – this is related to income.
Precautionary demand – money needed for financial emergencies.
Asset motive/speculative demand – when people wish to hold money rather than buy assets/bonds/risky investment.

Thus, Aggregate demand is not a component of money demand.

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