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Money And Banking

Question
CBSEENEC12012737
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What is speculative demand for money?

Solution
Speculative demand for money open parentheses straight M subscript straight T superscript straight d close parentheses. It is demand for money as ‘store of wealth’. Wealth can be held (stored) in the form of landed property, bonds, money, bullion, etc. For sake of simplicity all forms of assets except money may be clubbed in a single category called bonds. Thus according to Keynes there are two types of assets, i.e., money and bonds. How to make best use of both considering if we deposit cash in saving bank account, we earn interest and if we purchase bonds, we get monetary return on it. People compare rate of return on bond with rate of interest on bank deposits. It is speculation about future changes (rise/fall) in interest rate and bond prices that the resulting demand for money is called speculative demand for money’. Clearly aim is to make money (monetary gain) out of money.

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