In a two-person economy, a firm pays its worker a salary of Rs 100 at the beginning of every month. The worker spends this income over the month on the output of the firm. What is the total volume of monthly transactions in this economy?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 200
Given:
Salary paid to the worker = Rs 100 a month
The volume of transactions counts every sale in the month.
Output sold by the firm to the worker = Rs 100
Services sold by the worker to the firm = Rs 100
Total transactions = 100 + 100 = Rs 200
Only Rs 100 of money is used, because each rupee changes hands twice.
NCERT (2026-27): “The Transaction Motive … Consider, next, a two-person economy consisting of two entities - a firm (owned by one person) and a worker. The firm pays the worker a salary of Rs 100 at the beginning of every month. The worker, in turn, spends this income over the month on the output produced by the firm - the only good available in this economy! … The average money holding of the firm as well as the worker is equal to Rs 50 each. Thus the total transaction demand for money in this economy is equal to Rs 100. The total volume of monthly transactions in this economy is Rs 200 - the firm has sold its output worth Rs 100 to the worker and the latter has sold her services worth Rs 100 to the firm.” |