The document discusses the speculative motive for holding money and how interest rates influence the demand for money. It explains that households and firms can hold wealth in money or interest-earning assets like bonds. Speculative balances refer to money held in anticipation of a fall in asset prices. The interest rate reflects the opportunity cost of holding money and influences whether money is held for transactions, precautionary purposes, or speculative purposes. A liquidity preference schedule relates the demand for money to the interest rate.

1. DEMAND FOR
MONEY(The Speculative Motive and The Influence Of
Interest Rates On The Demand or Money)

2. 3. The Speculative Motive
• Whereas the transactions and
precautionary motives emphasize
money’s role as a medium of exchange,
the speculative motive emphasizes its role
as a store of its wealth.
• A household or firm can hold its wealth in
money or in such interest-earning
assets as bonds.

3. • Speculative Balance — are
balances held in anticipation of fall in
the price of assets.
• This applies to anything that is bought
and sold, including stocks and
bonds.

4. 4. The Influence Of Interest Rates
On The Demand For Money
• The interest rate affects each one.
• The market rate of interest reflects the
opportunity cost of money holdings (the money
could be lent to and earn the market rate)
• The higher the rate of interest, the higher
the cost of holding money and the less
money will be held for transactions and
precautionary purposes.

5. • The rate of interest also influences
decisions whether to hold money for
speculative purposes.
• This occurs because of the inverse
relationship between bonds and stocks.
• Liquidity preference thus refers to the
demand to hold assets in form of money
rather than as interest-earning wealth.
• Liquidity preference schedule is the
schedule relating the demand for money
to the interest rate.

6. THE ROOTS OF
BERNANKEISM

7. • A pair of economic breakthroughs that
emerged after the crisis ended has played
a huge role in how officials respond to
crisis today. One came from Irving Fisher
of Yale, the other from John Maynard
Keynes of Cambridge.

8. • Fisher believed the economy had become
stuck in a cycle of debt and deflation.
• Keynes, though he didn’t disagree with
Fisher’s account, he just didn’t think such
monetary action alone was powerful
enough to lift an economy out of the
Depression.

9. • Irving Fisher of
Yale

10. • John Maynard
Keynes of
Cambridge