Curitiba Metro Map on Transaction demand for money comes from individuals' desire to purchase goods and services, and precautionary demand for money materializes from individuals; aspiration to meet unforeseen expenditures. The speculative demand for money comes from people's propensity to hold money as a store of wealth. The cost of holding wealth in the form of liquid money is the rate of return that could be earned on the alternative financials assets, such as BONDs. Since the bond prices were inversely related to interest rate, Keynes deduced that speculative demand for money also was inversely related to the interest rate.
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He argued that the interest rate is not the price that brings into equilibrium the investment demand with saving; rather the interest rate is the price that equilibrates the desire to hold wealth in the form of cash with available quantity of cash. The classical economists argued that a unique market rate of interest would be established by the tendency of the rate of returns on physical and financial assets to equate. Keynes emphasized that the speculation in the bond market would stabilize the interest rate, which could differ from the rate of return on physical assets, which may lead to a shortfall in investment and insufficient aggregate demand.
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