If there are economies of scale in the transactions demand for money,as income increases,money demand
A)increases proportionately.
B)increases less than proportionately.
C)increases more than proportionately.
D)does not change.

Question

Quizplus · Accepted Answer

When there are economies of scale in the transactions demand for money, as income increases, money demand increases less than proportionately. This is because transaction costs (e.g. fees for bank transfers) do not increase proportionately with income, so people do not need to hold as much additional money as their income increases.

If There Are Economies of Scale in the Transactions Demand