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CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

According to Keynes, which of the following motives for holding money depends mainly on the level of income and is meant to bridge the gap between receipt of income and its spending?

The transactions motive is the correct answer. People hold cash to bridge the interval between receiving income and spending it on routine purchases, and the amount held rises with income. Speculative holding depends on interest rates, while precautionary holding is for emergencies.

  1. ATransactions motiveCorrect
  2. BSpeculative motive
  3. CPrecautionary motive
  4. DInvestment motive

Explanation

Keynes identified three motives: transactions, precautionary and speculative. The transactions motive covers day-to-day spending needs between income receipts and is mainly income-dependent. The speculative motive depends on the interest rate, and the precautionary motive covers unforeseen contingencies.

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