Macroeconomics Coursework Example | Topics and Well Written Essays - 1500 words

Macroeconomics - Coursework Example When the relationship between demand and price is illustrated in a graphical form it is called the demand curve. The demand curve slopes downward from left to right, because the price of a product goes up the quantity demanded decreases. The demand curve is drawn with the assumption that only the price changes while other factors remain same. Besides such a demand for money in order to carry out various transactions, some people demand it for hoarding or holding wealth in liquid form. It can conveniently be used according to variations in the market conditions (Pinkmonkey.com). Keynes was the first economist to admit the role of speculative activities in modern economy and that of demand for money made by speculators. Such demand is made to invest in capital market for buying shares, bonds, securities etc. when their prices are low. But speculators quickly dispose of their securities when their prices are sufficiently high. They make capital gains from such transactions. In order to carry out this activity, speculators create demand for money on a large scale. Keeping money in this idle form is known as hoarding of money. Keynes has shown that speculative demand for money is highly fluctuating. It all depends upon fluctuating prices and market conditions for securities. Demand for money means demand to hold money on hand. Money in one’s hands earns no income. If converted into goods or other financial assets one can derive either additional utility or income. There are three motives as described by Keynes that makes people hold money on hand. They are: For instance, the working class will get their salaries only on the first of every month, while their expenditures are distributed through out the month. To cater to their day-to-day expenses, people keep aside certain part of their income. It implies that the income which the people receive is periodic while the expenditure incurred by them is continuous. Hence, the