precautionary demand for money

Precautionary Demand for Money

In Keynesian economics, a need for money resulting from an unforeseen situation. Medical bills following an accident are an example of precautionary demand. According to John Maynard Keynes, people keep savings accounts, as well as some stocks and commodities, in order to cover precautionary demand if and when it occurs.

precautionary demand for money

the demand for MONEY balances that are held to cover for unforeseen contingencies, for example, loss of earnings resulting from illness. The amount of money held for such purposes is broadly dependent on the level of INCOME and expenditure. The precautionary demand for money, together

with the TRANSACTIONS DEMAND FOR MONEY (that is, money held on a day-to-day basis to finance current expenditures on goods and services) and the SPECULATIVE DEMAND FOR MONEY (that is, money held to purchase BONDS in anticipation of a fall in their price) constitute the MONEY DEMAND SCHEDULE.

See LIQUIDITY PREFERENCE, L-M SCHEDULE.

References in periodicals archive ?
Second, consumer good shortages (quantity constraints) should affect the transaction and the precautionary demand for money.
In other words, this "M1 problem" is simply a result of the fact that an increase in the precautionary demand for money can be satisfied by either an increase in demand for M1 or an increase in demand for NM1M2 (and perhaps NM1M3).