ECN 101 Lecture Notes - Lecture 6: Liquidity Trap, Divisor, Keynesian Economics
Document Summary
Keynes was interested in the short run analysis and he believed that in the long run we will all be dead. Qualities of good monetary media: acceptability, stable, portable, scarce, durable, divisible. Forms of money: precious metals and coins, paper money, bank deposits/ demand deposits, near money ie. deposits within building societies, plastic money. Functions of money: medium of exchange, store of value, measure of value, unit of account, standard of deferred payment. It is the total amount of money balances that people wish to hold for all purposes. i. e. cash or deposits. It is demand for real balances, the number of shillings, dollars, pounds etc dividend by the price level. According to keynes, people hold money for three motive: transactionary motive, precautionary motive, speculative motive. According to keynes total demand for money or liquidity preference is found by adding the transactions, precautionary and speculative demands.
