Retaining cash balances in anticipation of advantageous purchasing opportunities exemplifies ?
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Answer: D. precautionary demand for money
Explanation
Holding currency reserves specifically to exploit unforeseen bargains represents the precautionary demand for money. Individuals and firms keep liquid funds ready to seize valuable market opportunities without needing immediate liquidation. This motive goes beyond regular daily transactions to safeguard against unexpected financial contingencies and surprises. John Maynard Keynes identified three primary motives for holding money in his foundational liquidity preference theory. The precautionary motive depends heavily on uncertainty regarding future expenses and potential investment bargains. Liquidity allows economic agents to act instantly when valuable commercial assets become unexpectedly available.
Businesses maintain cash reserves to purchase discounted inventory or acquire struggling competitors at short notice. Investors hold dry powder in cash portfolios to buy equities during sudden market downturns. This behavior explains why money demand remains active even when predictable daily transactions are fully accounted for. Asset demand relates to holding money as a store of value compared to bonds during fluctuating interest rates. Transactions demand refers strictly to the routine exchange of money required for everyday purchases of goods. Token demand is not a recognized economic term within standard monetary theory frameworks.
Related questions
Q1. A negative income elasticity of demand identifies a product as ?
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Answer: B. an inferior good
A negative income elasticity coefficient reveals that consumer demand moves in the opposite direction of income. As households experience higher earnings, they purchase fewer units of this specific category of merchandis...
Q2. When the investment demand schedule is vertical ?
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Answer: C. monetary policy is ineffective but fiscal policy is effective
A vertical investment schedule means business investment is completely unresponsive to interest rates. Monetary policy operates through interest rate channels, rendering it ineffective here. Fiscal policy directly impact...
Q3. Given the Keynesian consumption equation C = 10 + 0.8 Td, what is the marginal propensity to consume when disposable income reaches Rs 1000?
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Answer: D. 0.81
The marginal propensity to consume is the coefficient on disposable income in the consumption function, which is 0.8.
Q4. Surpassing export revenue expectations tends to cause Pakistan's currency exchange value to ?
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Answer: D. appreciate
Higher export revenues generate an increased international requirement to acquire the domestic currency. Foreign buyers must exchange their own money for Pakistani rupees to pay for these additional goods. This surge in...
Q5. With a 40% marginal tax rate, if consumer earnings expand from Rs 10,000 to Rs 12,000 ?
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Answer: D. The total tax paid will be Rs4,800
The marginal tax rate of forty percent applies to the income increase of two thousand rupees. Calculating forty percent of the two thousand rupee increase yields an additional eight hundred rupees. Adding this eight hund...
Q6. Given the Keynesian consumption equation C = 10 + 0.8 Td, what is the aggregate consumption expenditure when disposable income totals Rs 1000?
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Answer: A. 0.8
Consumption at Rs 1000 disposable income is 10 + 0.8(1000) = 810, though the question's answer key mislabeled option A.