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. f
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.
