CA Foundation · Business Economics · Money Market
Ramesh, a trader in Indore, keeps an extra amount of cash at home so that he can meet an unexpected hospital bill or a sudden repair of his shop. In Keynes' classification, this cash is held under which motive?
The cash is held under the precautionary motive. Keynes described this as money kept to meet unforeseen contingencies such as sudden medical expenses or repairs, as opposed to planned day-to-day spending, which is the transactions motive, or holding cash to exploit bond price movements, which is speculative.
- ATransactions motive
- BPrecautionary motiveCorrect
- CSpeculative motive
- DInvestment motive
Explanation
Cash kept to meet unforeseen contingencies such as illness or sudden repairs is held under the precautionary motive. The transactions motive covers planned, routine expenditure. The speculative motive is about gaining from changes in bond prices, which is not the case here.
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