Match the symbols used in the transaction demand for money (List-I) with their meaning (List-II):
| List-I | List-II | ||
|---|---|---|---|
| (A) | k | (I) | The general price level or the GDP deflator |
| (B) | v | (II) | The number of times a unit of money changes hands during the unit period |
| (C) | T | (III) | The total value of (nominal) transactions in the economy over the unit period |
| (D) | P | (IV) | A positive fraction in the relation MdT = k.T |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → (A) - (IV), (B) - (II), (C) - (III), (D) - (I)
Transaction demand for money is written as MdT = k.T, or MdT = kPY. Each symbol has one meaning.
| List-I | List-II | Reason |
|---|---|---|
| (A) k | (IV) A positive fraction in the relation MdT = k.T | k is the fraction of the value of transactions held as money. |
| (B) v | (II) The number of times a unit of money changes hands during the unit period | v is the velocity of circulation, equal to 1/k. |
| (C) T | (III) The total value of (nominal) transactions in the economy over the unit period | T is a flow of transactions over the period. |
| (D) P | (I) The general price level or the GDP deflator | P appears in MdT = kPY with real GDP Y. |
NCERT (2026-27): “The Transaction Motive … Md T = k.T (3.1) where, T is the total value of (nominal) transactions in the economy over unit period and k is a positive fraction. The two-person economy described above can be looked at from another angle. You may perhaps find it surprising that the economy uses money balance worth only Rs 100 for making transactions worth Rs 200 per month. The answer to this riddle is simple - each rupee is changing hands twice a month. … The number of times a unit of money changes hands during the unit period is called the velocity of circulation of money. … where Y is the real GDP and P is the general price level or the GDP deflator.” |