Question

In your own words, explain the difference between the transactions demand for money, the asset demand for money and the total demand for money.

Answer 1

Demand for money means desired holding of financial assets in the form of money like cash ,cash at bank etc.so investment is mot prefered here.

When we talk about demand for money then we can say that in the short sense it can be defined as M1 which is focus on direct spending,M2 & M3 which is defined in broder sense.

There are three type of demand for money - 1)Asset demand of money 2)Transcation demand for money 3) Speculation demand for money

1) Transaction demand- Transcation demand means money kept for doing transcation .It means it is that type of demand which is arises due to purchasing of goods and services.This demand have varation with Gross domestic product.Transcation money is used in present.Transcation demand does not hold money.

2) Asset Demand means money kept as a store or saved for future use.Asset demand and interest rates both have inverse relationship.because asset demand is basically price for do not purchasing or using money.Asset demand is used for future purpose.Asset demand hold money.

Total Demand for money is sum total of transaction demand and Asset demand for money.hence when we added money demand for both purpose like transaction & Asset .then it is known as total demand for money.It is tell us that how much money is used for transaction purpose and how much money is at hold .