Relationship between interest rate and speculative balances

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Reference no: EM131193885

Identify the motive for holding money in the following scenario.

Joneas recently moved from a comission-based sales job which his income flucated somewhat unpredicately from on month to the next to a salary-based management position where he recevies a fixed paycheck each month. His newfound income stability causes him to lower the amount of money he keeps in a sacings account to guard against a sudden drop in income. This is an example of a decrease in Jonas's (precautionary/speculative/transactions) demand for money.

Complete the following statement about the relationship between the interest rate and speculative balances.

As the interest rate RISES, the opportuninty cost of holding money rises/falls), and people (increase/decrease) their speculative balances.

Reference no: EM131193885

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