WAEC Economics 2012 Theory — Question 4

Model answer

(a) Money is anything generally acceptable as a medium of exchange in a society. (b) The three motives for holding money according to John Keynes are: (i) Transactionary motive: Demand for money to be held for unforeseen contingencies and services. (ii) Precautionary motive: demand for money to cater for daily transaction in goods and services, and for unforeseen contingencies. (iii) Speculative motive: Demand for money for investment opportunities. (c) Determinants of the motives: Transactionary: (1) Consumers' income level, (2) frequency of income/wage payments. Precautionary: (1) Level of income, (2) uncertainty of future needs. Speculative: (1) Interest rate, (2) expectations about future prices of financial assets.