What is the term for holding money as a medium of exchange to make payments?

What is the term for holding money as a medium of exchange to make payments?

• A. Asset demand
• B. Aggregate demand
• C. Precautionary demand
• D. Transactions demand

Answer: (D)

The term that refers to holding money as a medium of exchange to make payments is transactions demand. This concept highlights the need for money to facilitate day-to-day transactions and purchases, allowing individuals and businesses to exchange goods and services efficiently. Transactions demand stems from the requirement of having cash on hand to meet immediate spending needs. For instance, when individuals receive their paycheck, they often hold a portion of it in the form of cash or deposits to pay for regular expenses such as groceries, rent, or utilities. This contrasts with other forms of money demand, which may not be directly related to daily transactions. Asset demand, on the other hand, refers to holding money as a store of value or investment rather than for immediate transactions. Precautionary demand involves holding money for unexpected expenses, which is not specifically tied to regular spending. Finally, aggregate demand represents the total demand for goods and services in an economy at a given price level and is not limited to the function of money as a medium of exchange. Therefore, transactions demand is specifically geared towards facilitating everyday economic activities through payment means.

The term that refers to holding money as a medium of exchange to make payments is transactions demand. This concept highlights the need for money to facilitate day-to-day transactions and purchases, allowing individuals and businesses to exchange goods and services efficiently.

Transactions demand stems from the requirement of having cash on hand to meet immediate spending needs. For instance, when individuals receive their paycheck, they often hold a portion of it in the form of cash or deposits to pay for regular expenses such as groceries, rent, or utilities. This contrasts with other forms of money demand, which may not be directly related to daily transactions.

Asset demand, on the other hand, refers to holding money as a store of value or investment rather than for immediate transactions. Precautionary demand involves holding money for unexpected expenses, which is not specifically tied to regular spending. Finally, aggregate demand represents the total demand for goods and services in an economy at a given price level and is not limited to the function of money as a medium of exchange. Therefore, transactions demand is specifically geared towards facilitating everyday economic activities through payment means.