John gets paid monthly and pays for everything with cash. When he cashes his check he keeps $200 for food, $100 for utilities, $900 for rent, $50 for transportation, $100 for entertainment and $300 for unexpected expenditures. Which of the following statements is true?

Question

Quizplus · Accepted Answer

The transactions demand for money is the amount of money that John needs to cover his regular expenses, which is $1,350 ($200 + $100 + $900 + $50 + $100). The precautionary demand for money is the amount of money that John keeps on hand for unexpected expenses, which is $300. The asset demand for money is the amount of money that John holds as an investment, which is $0.

John Gets Paid Monthly and Pays for Everything with Cash