Transactions demand, in economic theory, specifically Keynesian economics, is one of the determinants of demand for money (and credit), the others being speculative demand and precautionary demand. Transactions demand is illustrated as a vertical line on the money demand graph. The demand of money has arose from the absence of perfect sinchronization of payments and receipts. The holding of money is to bridge the gap between payments and receipts. Transaction demand for money is due to the household's motive to hold money for daily transaction and the business's motive to facilitate the daily operation. The transactions demand for money is positively related with the amount of real income.It also depends on the timing of expenditures and the length of the payment period.
The Baumol-Tobin model focuses on the optimal number of transactions for a household.
Famous quotes containing the word demand:
“I often accuse my finest acquaintances of an immense frivolity; for, while there are manners and compliments we do not meet, we do not teach one another the lessons of honesty and sincerity that the brutes do, or of steadiness and solidity that the rocks do. The fault is commonly mutual; however, for we do not habitually demand any more of each other.”
—Henry David Thoreau (1817–1862)