Transactions demand, in economic theory

Economics

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, specifically Keynesian economics

Keynesian economics

Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...

, is one of the determinants of demand

Supply and demand

Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...

 for money (and credit

Credit (finance)

Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...

), the others being speculative demand

Speculative demand

Speculative demand is the demand for financial assets, such as securities, money or foreign currency that is not dictated by real transactions such as trade, or financing.The need for cash to take advantage of investment opportunities that may arise....

 and precautionary demand

Precautionary demand

Precautionary demand is the demand for financial assets, such as securities, money or foreign currency; it is money people want in case of emergency....

. Transactions demand is illustrated as a vertical line on the money demand graph.
The demand of money is arisen form the absence of perfect snchronization of payments and receipts. The holding of money is to bridge the gap between payments and receipts. Transaction demand for money is due to the household motive to hold money for daily transaction and the business motive to facilitate the daily operation.
The transactions demand for money is positively related with the amount of real income.It also depends on the timing of expenditures and the length of the pay period.

The Baumol-Tobin model

Baumol-Tobin model

The Baumol-Tobin model is an economic model of the transactions demand for money as developed independently by William Baumol and James Tobin . The theory relies on the trade off between the liquidity provided by holding money and the interest foregone by holding one’s assets in the form of...

focuses on the optimum number of transactions for a household.