If the dollars held for transactions purposes are, on the average, spent four times a year for ﬁnal goods and services, then the quantity of money people will wish to hold for transactions purposes is equal to
A) 4 percent of nominal GDP.
B) 25 percent of nominal GDP.
C) nominal GDP multiplied times 4.
D) nominal GDP divided by 25.

Question

Quizplus · Accepted Answer

The quantity of money people will wish to hold for transactions purposes is equal to the amount of money needed to cover transactions during a certain period of time. If the dollars held are spent on average four times a year, then the quantity of money people will want to hold for transactions is 1/4th of the total amount spent in the economy during that period. Therefore, it is equal to 25 percent of nominal GDP.

If the Dollars Held for Transactions Purposes Are, on the Average