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. Money is held only for speculative purposes
D. Only the transactions motive matters and uncertainty is irrelevant
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.
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