Which of the following pairs is correctly matched?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Money demand (MdT) – Stock concept
A stock is measured at a point of time; a flow is measured over a period. Money demand is the money people want to hold at a point of time, so it is a stock.
Option (1) Total value of transactions (T) – Stock concept — Incorrect. T is measured over a period, so it is a flow.
Option (2) Money demand (MdT) – Stock concept — Correct. It is the stock of money held at a point of time.
Option (3) Money supply – Flow variable — Incorrect. Money supply, like money demand, is a stock.
Option (4) Velocity of circulation (v) – Has no time dimension — Incorrect. Velocity counts changes of hands per month or year, so it has a time dimension.
NCERT (2026-27): “The Transaction Motive … where, v = 1/k is the velocity of circulation. Note that the term on the right hand side of the above equation, T, is a flow variable whereas money demand, Md T , is a stock concept - it refers to the stock of money people are willing to hold at a particular point of time. The velocity of money, v, however, has a time dimension. It refers to the number of times every unit of stock changes hand during a unit period of time, say, a month or a year. …” “Legal Definitions: Narrow and Broad Money Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a particular point of time is called money supply. …” |