Consider the following statements:(A) The transaction demand for mone…

Consider the following statements:

(A) The transaction demand for money is M^d_T = k.T, where k is a positive fraction.
(B) The velocity of circulation of money (v) is equal to k.
(C) In the relation M^d_T = k.T, the total value of transactions (T) is a flow variable.
(D) In the relation v.M^d_T = T, the term v.M^d_T measures the total value of monetary transactions made with the stock of money in the unit period.
(E) The money demand M^d_T is a flow variable.

Which of the statements given above are NOT correct?

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → (B) and (E) only

(A) The transaction demand for money is MdT = k.T, where k is a positive fraction. — Correct. This is equation (3.1) of the book.

(B) The velocity of circulation of money (v) is equal to k. — Incorrect. Velocity is the inverse of k: v = 1/k.

(C) In the relation MdT = k.T, the total value of transactions (T) is a flow variable. — Correct. T is measured over a period.

(D) In the relation v.MdT = T, the term v.MdT measures the total value of monetary transactions made with the stock of money in the unit period. — Correct. v counts how many times each unit of money changes hands, so v.MdT is the value of transactions made with that stock.

(E) The money demand MdT is a flow variable. — Incorrect. Money demand is a stock: the money people hold at a point of time.

NCERT (2026-27): “… where, T is the total value of (nominal) transactions in the economy over unit period and k is a positive fraction. …”

“… 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. Thus, the left hand side, v.Md T, measures the total value of monetary transactions that has been made with this stock in the unit period of time. …”