There are two types of demands, transactional demand and asset demand. Transactional demand is liquid
money that we use for our everyday needs. We use it to buy breakfast in the morning, gas to go work, food
for lunch, or groceries after work. Some people may use their transactional demand for other purposes but the
definition is to use what you have in exchange for what you need. Asset demand is for those individuals who
store their money away for the future. For certain savings their money could grow over time but the most
popular asset demand is a savings account. Majority of the world has a savings account that they build in
hopes to build wealth for their future. Some people also have investments that they use or rely on to help
build their future wealth that can be passed on to generations to come. I feel like this is also taking a gamble
on things because the market is unpredictable.Transactional Demand (DT) and Asset Demand (DA) are the
two parts of money demand. Money that is used for purchases is called transactional demand and it changes
in direct relation to Gross Domestic Product (GDP). Money kept as a store of value for future use is called
asset demand. Interest rate represents the cost of keeping money idle, DA changes inversely with interest rates.
The total amount of money required equals the sum demanded in assets and transactions. The demand curve
for money shows how the quantity of money demanded and the interest rate is inversely related.
You are holding the money as part of your DT when you keep cash in your wallet or pocket to pay for a
groceries or keep money in your checking account so you can pay bills later in the month.
DA aren’t as liquid and could take time to convert to a more liquid currency. Types of DA consist of stocks
and bonds that would be required to be sold for currency and take a couple of days to chage to DA.
Transactional demand for money is comprised of our need to use more for goods and services. These needs
differ from asset demand for money, which is a desire to hold on to money to store wealth.
Transactional demand will include goods and services necessary and vital, such as basic food needs and
repairs for a vehicle used for work. It may also include purchases that were wants, rather than needs. The
transactions will grow, if the interest rate is low, and a person’s desire for goods or services is more than the
opportunity cost of the loss in saving the money. Holding on to money, however, is the inverse function of
the interest rate. As the interest rate rises, the loss of additional goods and services as an opportunity cost,
falls. This makes people want to store their wealth and hold it until such time as the opportunity costs present
a favorable time to convert their asset demand back into transactional demand. A transactional demand may
include food, a car wash, or a hospital stay. An asset demand may include mutual funds, traditional IRAs, or
savings accounts. Transactional demand is the money we hold for everyday transactions. This can be the
coffee we grab on the way to work, the gas we put in our car to get home, or other things we need on a day
to day basis. Asset demand is the money we put into savings, it’s the money we hold for the future, whether
for our retirement or to buy a new house, or even the money we want to leave our children. The price level is
the amount we pay for goods and services. Aggregate demand is the total of all income in the economy sold
at a particular rice level. The price level and aggregate demand are both affected by interest rates Interest rates
cause prices to rise. Interest rates are also used in the bank systems to help them make a profit. When we get
a loan or a mortgage, or even our student loans. We pay interest so the institution can make money.Compare
and contrast the transaction demand and asset demand for money.What is the relationship between interest
rate, aggregate income, and price level, I will have to say money is for many purchasing a value Direct with
GDP assess the man short and known as (DA )which be at business or stores for the value assets demand with
the interest rates, cause the demand is more like an income and interest rates whether you people to be able to
hold cash such as money which explains the demand for money is inversely related to the interest rate just for
an example if you apply for a high-speed internet rates most people are prefer a total bondage package which
you have to expect High internet payments which is based off the internet ratings There are two different
kinds of demands for money. Either it is Asset Demand or Transaction demand by either people or
corporations. Transaction demand for money for people can be liquid cash on hand for everyday needs such
as food, shelter, entertainment, travel etc. But also for companies such as a supermarket having cash on hand
or checks to pay for inventory with trucks deliver their goods. Transaction demand can be currency in your
country, debit cards, traveler checks etc. for purchases.
Some examples of asset demand for money would be investments as as a store of value for the future. Good
investments on the stock market that is safer is ETFs (Exchange-Traded Fund) as it spreads the risk between
many companies. Some are stable and others are more risky. Unless someone is well versed in the market
ETFs are a safer buy then individual stocks. Some individuals also hold onto art or wine as a long term
investment as a asset demand, even though they do not earn any interest or dividends.
The US currency is considered an international currency.
The notion of an international currency relates to the function of money that is Unit of Account.
For unit of account, the currency is a yardstick by which the value of all other goods and services are
measured.
When a trade takes place, all values are based on the currency accepted in the market. In the US, the accepted
currency is the US Federal Reserve note. In Japan, the accepted currency is the Japanese Yen. In most
European countries, the accepted currency is the Euro.
To be an international currency, the currency must be accepted across borders for exchange.
For a currency to be considered an international currency it may be either commodity money (which could be
oil or weapons) or fiat money; however, it must be accepted across borders for imports, exports, and domestic
exchanges.Historically, the Swiss Franc, British Pound, Japanese Yen, Euro, and US Dollar have been
considered international currencies.However, with the stability issues and Brexit, the British Pound lost its
status as an international currency.Firms in Japan required British firms to sign contracts with either Yen,
Euro, or Dollars, not Pounds as the exchange currency.In some countries, you might be able to directly pay
for items with an international currency instead of the domestic currency.How do digital currencies, such as
Bitcoin and others affect the global economy with respect to trade across borders?
The price level increase has some notable effects on the market. With the rise in the price levels in the
economy, the reflection can be seen in the prices of goods and services. Such a rise in price levels tends to
result from inflations that measure the percentage increase in the price levels within a specific period. The rise
in the price levels means that there will be an increase in the average interest rate across the economy. When
the price level falls, there is deflation in the market. Such a decrease in price levels will likely cause a
reduction in average interest rates across the economy. On the other hand, an increase in aggregate demand
precipitates price levels. Such a rise in demand is a result of an increase in consumption spending, investment
spending, as well as government spending and more spending on exports less imports.
An example of the demand for money is when I take my siblings and buy them some snacks during the
weekend. Another example is when I go to the retail store to get some shopping for the month. Asset demand
includes purchasing stocks for a particular listed company or getting government bonds as a kind of
investment. g
Transactional demand results from the demand for money and transactions needed for trading it for goods and
services and in places of business. The asset demand is the need for funds to fund purchases of stock, bonds
and other assets. Other examples include investments, savings and 4001k plans as asset demands.The
relationships between interest rates, aggregate income and price levels involves the theory of money. The
amount of money in circulation should be proportional to the level of overall prices for things. So, if the
supply of money increases, prices for goods and services increase as well.
When total income increases the amount needed for transactions also increases. Interest rates and their levels
decide the asset demands for money. When interest rates and their levels decrease so does the demands from
people and small business owners to borrow money.I see the stock market go up and down as it opens and
close when I scan for news throughout my day. This is asset demand on a very large scale involving millions
of dollars. An increase in the price level (i.e., inflation), will cause an increase in average interest rates in the
economy. In contrast, a decrease in the price level (deflation), will cause a decrease in average interest rates
in the economy. The rise in aggregate demand raises the aggregate output, which subsequently leads to
increase in demand for money. This further creates an excess demand of money, which in turn increases the
rate of interest.
Some examples of transaction demand for money is carrying money in your pocket to buy groceries, utensils,
to buy a bus ticket etc. It is the everyday life of buying whatever you need as the day goes on like coffee at
Starbucks, lunch, and such things. The demand for money is the amount of money required for current
transactions of companies and individuals. Example for asset demands are when some people hold money as
a financial asset just like stocks and bonds. When they have portfolios and invest their money onto these
assets in which they would earn some money back. Transaction demand for money simply is when you have
the money physically in hand and you use that money to purchase or exchange for goods such as in a
supermarket or clothing store. Another example of transaction demand for money would be a person paying
for a cleaning service or landscaping service and using physical money to pay for that service.Asset demand
for money can be explain as if I was to invest some money that I had into some stocks and looking for a
return or growth in that investment over time. Another example of asset demand for money would be setting
aside or put money in a savings or bonds account and that money gain interest overtime. As the money grows
it can be passed on to ones children. The difference between transaction demand and asset demand for money
is something in which we all experience. The transaction demand happens when you use your money to make
a purchase. The demand for money involves several components like; interest rates, income, and ect. Asset
demand is when money is held in a liquid form. Stocks and bonds are a familiar example for asset demand.
Interest rate is what tells you the cost of borrowing for the current time. Aggregate income is the total income
of an economy not including inflation. Price level is the price for goods and services throughout an economy.
Transaction demand for money is going to the grocery store. When you go to the store and utilize money that
you have on your person. When you work for a company and they pay you, this is a transaction demand.
One example of asset demand is Life insurance is a way that is asset demand for money. When you have the
Whole Life policy it is more expensive choice but it has ways of being beneficial for you as you are alive.
Checking accounts are also examples of an asset demand.
