Transactions demand, in

economic theory Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyze ...

, specifically

Keynesian economics Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output ...

and

monetary economics Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions (such as medium of exchange, store of value and unit of account), and ...

, is one of the determinants of the

demand for money In monetary economics, the demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits rather than investments. It can refer to the demand for money narrowly defined as M1 (directly spendable ...

, the others being asset demand and precautionary demand.

Overview

The transactions demand for money refers specifically to money narrowly defined to include only its liquid forms, especially

cash In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immed ...

and

checking account A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the ...

balances. This form of money demand arises from the absence of perfect synchronization of payments and receipts. The holding of money is to bridge the gap between payments and receipts. The transactions demand for money is motivated by the need to facilitate daily transactions by consumers, businesses, and governments. The transactions demand for money is one component of the overall demand for money. The other components are the asset or

speculative demand The speculative or asset demand for money is the demand for highly liquid financial assets — domestic money or foreign currency — that is not dictated by real transactions such as trade or consumption expenditure. Speculative demand arises fro ...

and the precautionary demand. The transactions demand for money is positively affected by the amount of real income and expenditure, and negatively affected by the interest rate on alternative assets, which is the

opportunity cost In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative to engaging in an alternative activity. More effective it means if you chose one activity (for exampl ...

of holding money for any reason. 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 times that funds are moved from other assets into money per unit of time, which dictates the transactions balances held on average over time.

References

Keynesian economics Demand for money {{Econ-term-stub