Liquidity preference depends on the demand for money in Keynes's general theory in three motives: the transactions motive
, the precautionary motive and the speculative motive.
Keynes's Liquidity Preference Theory asserts that there are three motives for holding money--1) a transactions motive 2) a precautionary motive and 3) a speculative motive.
a) Since a credit card can be used as a method of payment the transactions motive would be affected.
This provides evidence that trading company finance is consistent with a transactions motive of trade credit.
Hence, the behavior of trading company finance is consistent with a transactions motive of trade credit.
Table 1: Electronic money influence on demand for money and cash balances Influence Demand for Money Transactions Motive
Yes, if substantial substitution Speculative Motive Maybe Precautionary Motive Not likely Functions of Money Means of Exchange Yes Store of Value Maybe Unit of Account Maybe, depending on the regulation consequence/consideration Demand for Money Transactions Motive
Reduce demand Speculative Motive Black market payments, tax evasion Precautionary Motive -- Functions of Money Means of Exchange Replace cash, cheques etc.
With a fixed quantity of money, the reduction in speculative holdings had to be offset by an increase in money held for the transactions motive. This implied an increase in income.
institutions, this conversion of funds held for the speculative motive to funds held for the transactions motive would be accomplished by transferring funds from time deposits to checking deposits (and to a certain extent to currency and coin).
The strength of his speculative and transactions motives
might undergo large fluctuations, causing funds to flow from deposits suitable for the transactions motive
(checking accounts) to those suitable for the speculative motive (deposit accounts) without inducing any change in the total.