Precautionary demand


Precautionary demand (for money)

The need to meet unexpected or extraordinary contingencies with a buffer stock of cash.

Precautionary Demand for Money

In Keynesian economics, a need for money resulting from an unforeseen situation. Medical bills following an accident are an example of precautionary demand. According to John Maynard Keynes, people keep savings accounts, as well as some stocks and commodities, in order to cover precautionary demand if and when it occurs.