Final answer:
Holding money for unplanned expenditures and emergencies is known as precautionary demand, which is important during economic uncertainty and to cover unexpected costs.
Step-by-step explanation:
Holding money to meet unplanned expenditures and emergencies is known as precautionary demand. This type of demand for money is driven by the desire to have liquid assets available in the event of unexpected situations that require immediate payment. People might also hold money for precautionary reasons during times of economic uncertainty when banks fear that borrowers may not be able to repay their loans or in case a panic arises, necessitating excess reserves to meet obligations.
Demand for money can be categorized into three types: transactions demand, which is money held for the purpose of everyday transactions; asset demand, which is money held as a form of investment since it can be the most liquid asset compared to others; and precautionary demand, which specifically relates to holding funds to cover unforeseen costs or emergencies.