Transactions Demand for Money

Transactions demand for money refers to the amount of money people and businesses need to hold to carry out everyday purchases and expenses. It depends mainly on their level of income—higher income means more transactions and thus more money needed. This demand is relatively stable because people continuously need cash for routine activities like shopping, bills, or salaries. It doesn’t fluctuate much with short-term changes in interest rates but increases as income grows. Essentially, it’s the money held primarily for making the day-to-day transactions that keep the economy moving.