Multiple choice

The transaction demand for money is a function of

  1. rate of interest

  2. income

  3. profit

  4. expectations
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B Correct answer
Explanation

Transaction demand for money refers to money people hold to facilitate everyday transactions - buying goods, paying bills, meeting regular expenses. This demand is directly proportional to income - higher income means more transactions and thus higher demand for money for transaction purposes. While interest rates affect speculative demand for money (holding money vs bonds), transaction demand primarily depends on the level of income in the economy.

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