Question

1. Explain why people demand for money and how demand for money would have been influenced by Covid-19 epidemic?

Answer 1

Demand for money is people's want of holding money in form of cash or bank deposits. According to Keynes, people demand money because of three motives:

1. Transactionary demand for money: People demand money for carrying out day to day transactions.

2. Precautionary demand for money: People demand money for unforeseen events in the future like major illness or accidents or for any other unfortunate incident.

3. Speculative demand for money: Demand for money for holding assets.

Thus the above three motives are the reason why people demand money.

At the time of this epidemic, the demand for money has increased. This is because people need more money for carrying out transactions because people are buying and spending more on goods now (masks, sanitizers, and safety equipment) and they need money to spend on the illness too if something happens.