Question
Asked Dec 2, 2019
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  1. Please explain the difference between the transaction demand for money and the asset demand for money, and how they work together to determine the total demand for money.
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Expert Answer

Step 1
The demand for money refers to the amount of liquid assets that households and firms desire
to hold at different rate of interest
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The demand for money refers to the amount of liquid assets that households and firms desire to hold at different rate of interest

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Step 2
Transaction demand for money is the amount of money that required to meet the day-to-day
transactions. There is a positive relation between the level of income and the transaction
demand for money. The transaction demand for money is independent of the rate of interest
and dependent on the level of income. Whereas, the asset demand for money refers to the desire
of public to hold money in the form of financial assets. There is an inverse relation between
the asset demand for money and the rate of interest. The asset demand for money falls with an
in rate of interest. Therefore, the major difference between the transaction demand for money
and the asset demand for money is that, the transaction demand for money is determined by
the level of income. While, the asset demand for money is determined by the rate of interest
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Transaction demand for money is the amount of money that required to meet the day-to-day transactions. There is a positive relation between the level of income and the transaction demand for money. The transaction demand for money is independent of the rate of interest and dependent on the level of income. Whereas, the asset demand for money refers to the desire of public to hold money in the form of financial assets. There is an inverse relation between the asset demand for money and the rate of interest. The asset demand for money falls with an in rate of interest. Therefore, the major difference between the transaction demand for money and the asset demand for money is that, the transaction demand for money is determined by the level of income. While, the asset demand for money is determined by the rate of interest

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