asset motive

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The incentive to hold money as a store of value. If prices are expected to be stable, money is a poor store of value as it earns little or no return. When inflation is expected, money does even worse as a store of value. If prices fall, however, money is an attractive asset, and if any chance of falling prices is anticipated, this can prompt a desire to hold money as an asset. In the IS-LM model of Keynesian economics consumers can hold savings in money or in bonds. Money is a safe asset whereas bonds are risky. The relative proportions of the two assets in savings will depend on a consumer's degree of risk aversion. If highly risk-averse a large proportion will be held in money.

Subjects: Economics.

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