Given below are two statements:
Statement I: The transaction demand for money of an economy is a fraction of the total volume of transactions in the economy over the unit period of time.
Statement II: The total value of annual transactions in an economy is less than its nominal GDP, as intermediate goods are left out.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
Statement I: The transaction demand for money of an economy is a fraction of the total volume of transactions in the economy over the unit period of time. — True. Each rupee changes hands many times in a period, so the money needed is only a fraction of the value of transactions.
Statement II: The total value of annual transactions in an economy is less than its nominal GDP, as intermediate goods are left out. — False. Transactions include intermediate goods and services. So their value is much greater than nominal GDP.
NCERT (2026-27): “The Transaction Motive … The transaction demand for money of the economy is again a fraction of the total volume of transactions in the economy over the unit period of time. …” “We are ultimately interested in learning the relationship between the aggregate transaction demand for money of an economy and the (nominal) GDP in a given year. The total value of annual transactions in an economy includes transactions in all intermediate goods and services and is clearly much greater than the nominal GDP. However, normally, there exists a stable, positive relationship between value of transactions and the nominal GDP. …” |