The specific content of Keynes s theory of money demand

There are three major motives for money demand: trading motives, prevention motives, and speculative motives.

The first motive is that the demand for money is stable and can be predicted in advance;

The first motive, the demand for money, is relatively stable and can be expected;

The third motivation is that the demand for money is unstable, because it is closely related to people's expectations of future money, and is greatly affected by subjective factors such as psychological expectations.

Money demand function md m1 + m2 l1(y) + l2(r) = l(y,i).

Three major motivations for monetary demand:

1. Transaction motives:

Used for day-to-day transaction settlement, Keynes believed that it was positively correlated with income y. Later, Baumol used the inventory model to prove that this demand is also negatively correlated with interest rates.

2. Motivation for prevention:

It is used to prevent emergencies, such as the cost of medical treatment when sick in daily life, Keynes believes that this is positively correlated with income, which can be understood simply, and people with more money will of course have more money to cope with emergencies. Later, Whalen combined mathematical tools such as the variance of interest rate income to conclude that this demand is also inversely proportional to interest rate i.

3. Speculative motives:

It is used to prepare for fleeting investment opportunities. For example, for Tencent, a new and good project suddenly appeared, but there was no currency, so it was necessary to leave a certain currency. This is negatively correlated with interest rates, which are already high and it is difficult to have better investment opportunities.

Extended Material: Keynesianism.

1. Do a detailed study of the motivation for trading.

In principle, Keynes believed that people's motivation to trade is mainly determined by the size variable, and although Keynes did not deny that the demand for transactions is related to interest rates, he did not give a specific and clear relationship. Focusing on this issue, Baumore (1952) and Tobin (1956) combined the cost model of inventory to give a general explanation. Baumol (1952) and Tobin (1956) postulated that there were two associated costs associated with whether or not people held coins:

The loss of opportunity to hold cash and the commission expense of disposing of valuable **, since these two costs are mutually reinforcing, individual decision-making will face choices and trade-offs, and make the total cost minimized, from which Baumole's famous square root law can be derived: m=(2bt) where b represents the commission fee per transaction, and r represents the price** interest rate. This equation shows that the elasticity of the demand for money with income t and interest rates is 1 2, which means that money is not a luxury, and its deeper meaning is that the more balanced the income distribution, the greater the aggregate demand for money, or the more uneven the income distribution, the lower the aggregate demand for money.

2. Indefinite determination of prudent motives.

As Keynes pointed out"The currency held in this motive is to guard against unscrupulous expenditures or favorable purchase opportunities that cannot be reversed. "One of the most famous extensions is Tobin's quadrant analysis of money demand, in which Tobin cleverly places cautious demand and trading demand and speculative demand in a unified analytical framework, and limits the cautious motivation to the scope of interest rate uncertainty.