If you hold money in anticipation of household emergency expense, this represents the::
A) speculative demand for holding money.
B) transactions demand for holding money.
C) opportunity cost motive for holding money.
D) precautionary demand for holding money.
E) regressive cost of holding money.

Question

Quizplus · Accepted Answer

Holding money in anticipation of household emergency expenses represents the precautionary demand for holding money. This is because it serves as a buffer to meet unforeseen expenses and unexpected events, such as medical emergencies or home repairs. The other options such as speculative demand refer to holding money for investment purposes, while transaction demand refers to holding money to carry out routine financial transactions. Opportunity cost motive for holding money is driven by the foregone interest that could have been earned if the money had been invested, and regressive cost of holding money refers to the negative impact of inflation on the value of money.

If You Hold Money in Anticipation of Household Emergency Expense