Precautionary demand

Precautionary demand is the demand for highly liquid financial assets — domestic money or foreign currency — arising from preparedness for emergency expenditures.

Overview

In economic theory, specifically Keynesian economics, precautionary demand is one of the determinants of demand for money (and credit), the others being transactions demand and speculative demand. The precautionary demand for money is the act of holding real balances of money for use in a contingency. As receipts and payments cannot be perfectly foreseen, people hold precautionary balances to minimize the potential loss arising from a contingency.

The precautionary demand is dependent on the size of income, the availability of credit, and the rate of interest. With more income the precautionary demand will increase because there are more likely to be surprises in the timing or size of the correspondingly high expenditures. On the other hand, the more readily available is credit (e.g., the larger is the untapped portion of a credit card's line of credit), the less of a need there is to hold precautionary balances of money. A higher rate of interest represents a higher opportunity cost of holding money for any reason, including the precautionary reason, and so leads to lower precautionary holdings.

gollark: It's a short program.

gollark: Command? This is a really inefficient way to obfuscate just a single Li-NUX command.

gollark: Anyway, that command is very safe and Lin-UX users should run it.

gollark: This module contains functions that can read and write Python values in a binary format. The format is specific to Python, but independent of machine architecture issues (e.g., you can write a Python value to a file on a PC, transport the file to a Sun, and read it back there). Details of the format are undocumented on purpose; it may change between Python versions (although it rarely does). [1]This is not a general “persistence” module. For general persistence and transfer of Python objects through RPC calls, see the modules pickle and shelve. The marshal module exists mainly to support reading and writing the “pseudo-compiled” code for Python modules of .pyc files. Therefore, the Python maintainers reserve the right to modify the marshal format in backward incompatible ways should the need arise. If you’re serializing and de-serializing Python objects, use the pickle module instead – the...

gollark: Well, it loads things.

This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.