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A consumer holds money to meet spending needs. This would be an example of the

A consumer holds money to meet spending needs. This would be an example of the

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A consumer holds money to meet spending needs. This would be an example of the "Transactions demand for money".

Transactions demand for money refers to the amount of money required for current transactions of individuals and firms. It is the quantity of money that all the Individuals and firms desire to keep on hand for the purpose of financing their forthcoming expenditure.

The main reason to hold money in cash for meeting day-to-day transactions is to bridge the interval between receipt of income and expenditure. For instance, a worker who gets his wages on the first day of the month has to spend it continuously throughout the month on purchase of goods and services.

The same consideration applies to businessmen. In short, the principal motive for holding cash is to carry out transactions. For simplifying the discussion, we aggregate precautionary demand for money (to provide for emergencies like sickness or accident) with transaction demand.

According to Keynes, transaction demand for money is mainly determined by the level of income. It is positively associated with the level of Income. Higher the level of income, the larger would be the size of money-holdings for transactions.

ekkarill92 answered 1 year ago
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