Theories of the demand for money that emphasize money’s mediumof-exchange role in the economy are called transactions theories. These theories emphasize that money, unlike other assets, is held to make purchases and in general show that the average amount of real money held involves a trade-off between transactions costs (that arise when people economize on their holdings of money) and interest income foregone.
KeywordsCapital Stock Real Interest Rate Money Demand Nominal Interest Rate Real Money
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