Friday, April 17, 2009

the demand for money and the quantity theory(2)

all these functions are were are worth paying for. and we each do incur a cost in holding a coin , a bill , or a demand deposit - namely , the sacrificed interest and profit yield that might be obtained from purchase of earning assets.
general electric works just as hard to keep down its unnecessary cash as it does to keep down its unnecessary steel inventory and wastage . the business manager of famous cartoonist was aghast to find that he had kept $120000 idle in a demand deposit , earning no interest for years, and all merely because he never read his mail!
it is clear from the above that there are two main motives for holding money :
(1)for the convenience of ordinary transactions needed at each level of income ; and (2) to fill a prudent precautionary need arising from the uncertainties of the safety and the yield from other forms of wealth , and of the uncertainties of timing of expense out payments and receipt in payments .

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