Q. 3

What is transaction demand for money? How is it related to the value of transactions over a specified period of time?

Answer :

Transaction demand for money is the amount of money required for current or day to day transactions. It is that quantity of money which all the individuals and firms desire to keep in their hand for the purpose of financing their forthcoming expenditure.

There are two motives of holding transaction money - income motive and business motive. Income motive is from the perspective of consumers who want money to meet household expenditure. Business motive is from the perspective of businessman who needs money to carry on their business activities.


The relation between transaction demand for money and value of transactions over a unit period of time is symbolised by


MDT = KT


1/K MDT = T


1/K = v = velocity of circulation of money


v MDT = T


T = Total value of transactions in the economy over a period of time


K is a positive fraction


MDT = Stock of money people are willing to hold at a particular point of time.


Rate this question :

How useful is this solution?
We strive to provide quality solutions. Please rate us to serve you better.
Related Videos
Human Evolution | An Important ConceptHuman Evolution | An Important ConceptHuman Evolution | An Important Concept40 mins
Medelian disorder series: Thalassemia, Sickle cell anaemia & PhenylketonuriaMedelian disorder series: Thalassemia, Sickle cell anaemia & PhenylketonuriaMedelian disorder series: Thalassemia, Sickle cell anaemia & Phenylketonuria60 mins
Meselson and Stahl experimentMeselson and Stahl experimentMeselson and Stahl experiment49 mins
Human EvolutionHuman EvolutionHuman Evolution38 mins
Rapid Quiz challenge - Cell Structure & Cell DivisionRapid Quiz challenge - Cell Structure & Cell DivisionRapid Quiz challenge - Cell Structure & Cell Division52 mins
Different high order thinking questions based on DNA structureDifferent high order thinking questions based on DNA structureDifferent high order thinking questions based on DNA structure39 mins
Everything About Genetic DisordersEverything About Genetic DisordersEverything About Genetic DisordersFREE Class
Interactive Quiz | Biotechnology - 03Interactive Quiz | Biotechnology - 03Interactive Quiz | Biotechnology - 0342 mins
Application of Biotechnology | Concepts - 02Application of Biotechnology | Concepts - 02Application of Biotechnology | Concepts - 0256 mins
Interactive Quiz on Human EvolutionInteractive Quiz on Human EvolutionInteractive Quiz on Human Evolution33 mins
Try our Mini CourseMaster Important Topics in 7 DaysLearn from IITians, NITians, Doctors & Academic Experts
Dedicated counsellor for each student
24X7 Doubt Resolution
Daily Report Card
Detailed Performance Evaluation
caricature
view all courses