transaction demand for money

Transaction Demand

The amount of money needed to cover the needs of an individual, firm, or nation. That is, transaction demand for money is a measure of how much of a certain currency people need in order to buy the goods and services they use. Generally speaking, if an economy is healthy, there is a high transaction demand for money because people are buying more goods and services. Conversely, if an economy is in trouble, people buy fewer goods and services. Unless there is a significant, sudden change in the transaction demand, central banks have little trouble adjusting the money supply to accommodate the changes that do occur.
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transaction demand for money


demand for MONEY balances that are held to finance day-to-day expenditure between the periodic receipt of INCOME (e.g. weekly wages, monthly alaries). The amount of money held for such purposes is dependent on the level of income (and expenditure). The transaction demand for money, together with the PRECAUTIONARY DEMAND FOR MONEY (money held to cover for unforeseen contingencies) and the SPECULATIVE DEMAND FOR MONEY (money held to purchase BONDS in anticipation of a fall in their price), constitute the MONEY-DEMAND SCHEDULE. See LIQUIDITY PREFERENCE, L-M SCHEDULE.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
In the discussion The Transaction Demand for Money: A Close Look, Kari (2015) summarizes the two main reasons why people would hold money, which can be translated into why people would hold Bitcoin if we treat Bitcoin as "money".
(2015) The Transaction Demand for Money: A Close Look - Retrieved from
Budget deficit will increase the interest rate because of the increment of transaction demand for money, and consequently, small interest rate increment will decrease the speculative demand (because of high elasticity or horizontal LM curve) and enable enough additional money for transaction demand, e.g.
One explanation for this negative (albeit insignificant) impact may be found in Evan's |24~ and Tatom's |72~ argument that increased interest-rate risk exerts an adverse effect on aggregate production which in terms decreases the transaction demand for money. Note also that v(R) may instead reflect inflation uncertainty.(17) Higher inflation uncertainty makes financial assets (e.g., M2) riskier to hold, in turn inducing some investors to reallocate their portfolio away from them in favor of real assets.(18) This view is consistent with Klein's |51~ choice-theoretic (utility maximization) approach.
Keynes also provided for a transaction demand for money which is a function of income.