Which of the following is a feature of the 'Buffer-Stock' theory of money demand?
A. Individuals hold money as a buffer against unforeseen fluctuations in income and expenditure
B. Money demand is independent of uncertainty
C. Only the transactions motive matters and uncertainty is irrelevant
D. Money is held only for speculative purposes
Answer: Option A
Solution (By JKSSB Mock Tests)
Buffer-stock models emphasise that money balances serve as a short-run shock absorber, allowing agents to smooth consumption in the face of transitory income or expenditure shocks.
Explanation:
The AK model assumes a production function linear in capital (Y = AK), thereby eliminating diminishing returns and generating endogenous long-run growth driven by capital accumulation.
Explanation:
The life-cycle hypothesis, associated with Modigliani, posits that individuals smooth consumption over their lifetime by saving during working years and dissaving during retirement.
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