Question -
Answer -
Transaction demand for money refers to the demand for money for meeting day to day transactional needs. As money is a liquid asset (easily acceptable or exchangeable), everyone has the tendency to hold money. People earn incomes at distinct points of time but consume throughout the entire period. So, people tend to hold money for transaction purposes.
The relationship between the value of transactions and transaction demand for money can be explained as:
The transaction demand for money in an economy (
) can be written as
= K T Or,
= TOr, 
= TWhere,
, represents velocity of circulation of money
T = Total value oftransactions in the economy over a period of time
K isa positive fraction = Stock of money people are willing to hold at aparticular point of time. The transaction demand for money is positively relatedto the total value of transactions and negatively related to the velocity withwhich money is circulated.