Money Matters - edited

The transactions demand for money results from the need for liquidity for day-to-day transactions in the near future. This need arises when income is received only occasionally (say once per month) in discrete amounts but expenditures occur continuously.

(2) precautionary demand:

Precautionary demand for money is for meeting emergencies

(3) speculative demand:

Speculative demand for money refers to the opportunity cost of holding money.  Holding money in cash means that it earns no returns. Hence the opportunity cost of money is the return it can earn if held in the form of bank deposits, mutual funds, stocks, bonds etc.

Now coming back to Khushi and Arnav, lets see how this applies to them. As Khushi comes from a lower middle class household, her transaction and precautionary demand for money is the highest.  Money is needed for running her household and pay up for unforeseen expenses like her father's medical bills.  Being a salaried employee every paise counts for her.  A reduction of Rs.3000 in her salary is a big deal for her.  As her transactions are in the form of cash she was expecting to be paid in cash.


Arnav is a self made businessman. Money would have been a dire necessity for him at one point but he is well past that stage where his very existence would depend on it.  To him the speculative demand for money plays a bigger role than the other two.  Being a shrewd businessman he would want to maximise the return on every penny he earns. This explains why he held no cash (or at least not the sum Khushi wanted) in his house for idle cash earns no return.  To meet his transactions and precautionary needs he could use his credit cards.



Coming to the issue of tax, Arnav is an honest businessman who pays his taxes promptly to the Government. As per rules, he also ensured that the salaries to his employees were paid out after tax deduction.  He did not feel the pinch of tax (although he must be in the highest tax bracket) because his wealth/income was huge enough to meet his requirements. For Khushi though, even a 10 per cent cut in her salary for tax purposes is a huge deal, particularly at the current juncture when expenses were high. While she was willing to pay her taxes, she only wished she could defer it to a later date.


Now coming  the more important issue of why did Arnav not pay up the hospital bills.  He knew of Khushi's economic situation. He knew that a hospital admission would only increase the expenses. Then why did he not voluntarily take on that burden?  Did he forget to do so after his encounter with Khushi at the hospital corridor?  Did he subconsciously refrain from doing so in order to retain that gap between the employer and an employee? Did he think that going beyond what a normal employer would do would convey the impression that she matters to him?  Anjali's reaction to the situation also baffled me.  She must be having her own resources, wouldn't she? Her husband was also earning. Why did she not offer to pay the difference? After all Khushi was employed by her (or at least at her behest). 

Lets see if we get answers to these questions.