the rate of interest
the level of savings
the level of income
general price level
Explanation
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Discussions (11)
I think the answer is B
precautionary demand 2 hold money becos of emergencies, and i think it is the level of savings. I stand 2 b corrected...
No be person wey get money go they us for unforeseen contingencies u never chop u dey keep money for emergencies. The answer na Ç oo na ur level of income go determine
myschool.the answer is c ooo...check comprehensive 4 details
..I jes read it now
The precautionary demand for money is facilitated by the desire to save money for unforseen circumstance,so if you dont save u have no precautinary motive to hold money,so the most correct answer is B even though savings are influenced by the level of income
Key Concept:
Precautionary demand for money refers to holding cash reserves for unexpected expenses or emergencies (part of Keynes' liquidity preference theory). Unlike transactions demand (daily needs) or speculative demand (investment opportunities), it is driven by uncertainty.
Evaluation of Options:
A. The rate of interest → Incorrect. Interest rates affect speculative demand (higher rates reduce money held for investments) but have minimal direct impact on precautionary holdings.
B. The level of savings → Indirect. Savings may enable precautionary funds, but it’s not the determining factor.
C. The level of income → Correct. Higher income increases the capacity and need for precautionary balances (e.g., emergency funds scale with earnings).
D. General price level → Incorrect. Price levels influence transactions demand (more money needed for purchases if prices rise), not precautionary motives.
Conclusion:
The precautionary demand for money is primarily determined by the level of income (Option C), as income dictates individuals' ability to set aside funds for unforeseen events.
Final Answer:
C. the level of income
The demand for money curve The amount of money demanded for transactions purposes is fixed given the level of income. Precautionary and asset demand are determined by the opportunity cost of holding money (the interest rate).
Option C
Explanation: The precautionary demand for money depends upon the level of income ( i.e direct) , and business activity, opportunities for unexpected profitable deals, availability of cash, the cost of holding liquid assets in bank reserves, etc. Keynes held that the precautionary demand for money, like transactions demand, was a function of the level of income.
The precautionary demand for money is determined or necessitated by the level of income... It is when you are earning enough cash and your disposable income is high that you can keep more money for precaution.. The correct answer is (C). Myschool please correct your answer.
