CA Foundation · Business Economics · Money Market
According to Keynes, which of the following motives for holding money is directly related to meeting day-to-day expenses such as buying groceries and paying bills, and depends mainly on the level of income?
The transactions motive is the correct answer. Keynes said people hold money to meet routine, day-to-day payments because receipts and expenditures do not coincide in time. The amount held rises with income, unlike the speculative motive, which depends on interest rates, or the precautionary motive, which covers uncertain emergencies.
- ATransactions motiveCorrect
- BSpeculative motive
- CPrecautionary motive
- DInvestment motive
Explanation
The transactions motive is the need for cash to bridge the gap between receiving income and spending it on routine purchases. It rises with income. The speculative motive relates to bond prices and interest rates, and the precautionary motive covers unforeseen contingencies.
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