Holding money to take care of contigencies is?

Step 1: Analyze the question The question asks which motive for holding money applies when people keep money to cover contingencies, meaning unexpected events such as sudden illness, accidents, or emergencies.

Step 2: Explain the concept (Motives for Demand for Money) Keynes identified three main motives for holding money:

1. Transaction motive: holding money for day-to-day purchases such as food, transport, and school fees.
2. Precautionary motive: holding money to meet unforeseen events or emergencies.
3. Speculative motive: holding money to take advantage of future changes in interest rates, or in the prices of bonds and shares.

"Expansionary motive" is not a recognized motive for holding money. "Expansionary" is usually used in connection with fiscal or monetary policy.

Step 3: Apply to the question

• "Contingencies" means unexpected or unforeseen events.
• Keeping money aside for such events matches the precautionary motive.

Checking the options:

• A. Speculative: this is about profiting from market changes, so it does not fit.
• B. Transaction: this covers planned, routine spending, so it does not fit.
• C. Precautionary: this covers emergencies and unforeseen needs, so it fits.
• D. Expansionary: this is not a motive for holding money.

Step 4: Answer The correct option is C. a precautionary motive.

Exam tip: Link each motive to a keyword:

• Transaction = Today's routine spending
• Precautionary = Problems or emergencies
• Speculative = Sharing in profit from market changes (bonds and shares)

If you see "emergency," "unforeseen," "rainy day," or "contingency," think precautionary.