Asset motive

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Updated: Aug 20, 2021

The incentive to hold money as a store of value. If prices are stable, money is a poor store of value as it earns little or no return. When inflation occurs, 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. A highly risk-averse consumer will hold a large proportion in money.

Reference: Oxford Press Dictonary of Economics, 5th edt.



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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.