Question

10. Distinguish between necessary and idle cash balances. Why, according to Keynes, do individuals hold idle...

10. Distinguish between necessary and idle cash balances. Why, according to Keynes, do individuals hold idle cash balances?

11. Derive the negative relationship between the amount of money held to satisfy the speculative demand for money and the rate of interest.

What implications does the existence of this speculative demand for money have for attaining full employment?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

10.

Necessary cash balances are maintained to meet the day to day needs and used as working capital. But, idle cash balances are additional cash, not used, but kept to meet the any future uncertainties. Necessary cash balances are for spending purposes and idle cash balances are over and above the necessary cash balance, not earning any interest or not being invested productively.

Keynes proposed that individuals hold idle cash due to the following reasons:

  1. Anticipation of recession causes individuals to spend less and save more to meet the future expenses. While doing so, idle cash balances are created.
  2. Paradox of thrift followed by people to save more so that worst economic scenarios and unemployment hardships can be tackled with ease. It leads to the creation of idle cash balances.

PL. repost other unanswered questions for their proper answers!

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. In the Classical Model individuals only hold cash in order to satisfy the transactions demand...
1. In the Classical Model individuals only hold cash in order to satisfy the transactions demand for money. Explain. What does this imply as far as the market for goods and services is concerned? 2. With fully flexible wages, prices and interest rates the economy always settles at the full employment level of GDP. Explain.
1. In the Classical Model individuals only hold cash in order to satisfy the transactions demand...
1. In the Classical Model individuals only hold cash in order to satisfy the transactions demand for money. Explain. What does this imply as far as the market for goods and services is concerned? 2. With fully flexible wages, prices and interest rates the economy always settles at the full employment level of GDP. Explain. 3. What form of unemployment is consistent with the Classical Model? 4. Provide a brief explanation of the Quantity Theory of Money. 5. Why is...
The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity....
The aggregate demand curve shows the relationship between the aggregate price level and: A) aggregate productivity. B) the aggregate unemployment rate. C) the aggregate quantity of output demanded by households, businesses, the government, and the rest of the world. D) the aggregate quantity of output demanded by businesses only. 2.When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described...
Gender Bias in the Executive Suite Worldwide The Grant Thornton International Business Report (IBR) has described itself as "a quarterly survey of business leaders from across the globe … surveying 11,500 businesses in 40 economies across the globe on an annual basis." 1 According to the 2011 IBR, the Asia Pacific region had a higher percentage (27 percent) of female chief executive officers (CEOs) than Europe and North America. Japan is the only Asia Pacific region exception. The report further...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT