Demand for Money: Transactive Motive and speculative motive Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

a question is that why do people hold
money people hold money because of
several reasons one is that you will buy
goods and services okay you go out in
the morning and you need to have some
amount of cash in your pocket so that
you can you can spend that cash over the
over the course of a day and you can
have goods and services which are
required every day so you require that
cash in order to make you know in order
to make transactions now so that is
called transactions demand for money
well there is some amount of cash which
you also need during during emergency
okay somebody has become ill in your
family you need to have reserve for that
so there is some emergency of whatever
kind and you need an immediate cash at
that time so you need to have reserve
for that and that is called
precautionary demand for money okay well
this is more or less clubbed under
transactions demand for money only that
is the reason I have written it in a
lower size then all the other factors
because of which you demand money other
than transactions demand for money or or
precautionary demand for money comes in
the speculative demand for money well
this is the this is the kind of money
which you held for speculation for
example you can have your wealth in the
form of money this M is basically money
or you can have your wealth in the form
of bonds because you're not holding
money in the form of bonds and you're
keeping that money with yourself okay so
you're not earning interest which you
could have earned on bonds and in case
if you invest in bonds it means that
you're not holding money with yourself
and you're investing money in the bonds
and hence you're earning interest in
them now you could think money is any
other good so in this case what is the
price of the book the price of the good
is interest rate okay that determines
whether you should keep money
or whether you should not keep money in
case of interest rate is high
should you be keeping money with
yourself or should be investing
somewhere else if interest rate is high
should you should you keep should you
demand high amount of money or you
should demand less amount of money that
depends okay so interest rate is the
opportunity cost of holding money this
is the cost of borrowing money so what
happens in case if interest is interest
rate is low in case of the interest rate
is low what is interest rate interest
rate is the opportunity cost of holding
money so in case if interest rate is low
then opportunity cost of holding money
is low in that case you won't loan out
your money you will keep that money with
yourself you will keep money
with yourself ok so what has been said
is that in case of the in case of bonds
are not paying you higher interest means
they are not as lucrative for you to
invest you would rather say then why
should I invest anyhow in case if I am
not getting the desired interest rate I
should be keeping that money with myself
in that case your demand for money is
higher you will be keeping a lot of
money with yourself ok and in case you
are borrowing money at in case you're
borrowing money then add a lower
interest rate you can borrow more huh it
depends at what side of the picture you
are so in case if you are borrowing
money at at lower interest rate you can
borrow more hmm you will have a higher
demand for money at a lower interest
rate if you are a borrower if you are a
borrower at at a higher interest rate
you would not want to borrow more your
demand for money being the borrower at
higher interest rate would be lower in
case if you are a lander in case if you
are a lender then an interest rate is
low you wouldn't you to not want to loan
out that money because you think that
you're not getting the desired interest
rate so you would rather keep that money
with yourself in case if at the higher
interest rate you would want to loan out
money huh it means that you will be
giving out more and more amount of money
because you think that you are getting a
desired rate of interest fine so as a
borrower interest rate is the percentage
amount which you will pay above the
principal you are born you are borrowing
and as a lender a interest rate is the
percentage of the amount which you will
receive over and above the principal you
save or lend so you'll have to see at
what side of the story you are but from
both the sides of story
the conclusion remains same at higher
interest rate if you are a borrower you
would not want more money you will
demand less money at higher interest
rate if you are a lender you would want
to give out more money it means that you
are demanding less money you keeping
less money with yourself at a lower
interest rate if were if you are a
borrower you can borrow more amount of
money it means that you can demand more
money if you are a lender at a lower
interest rate you would not want to give
out more money you would not want to
loan out more money you would want to
keep that money with yourself huh it
means that you're demanding moment so at
a lower interest rate
demand for money is higher and at a
higher interest rate demand for money is
lower in the next recording we try to
look at the downward sloping demand
curve of money