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 total amount John needs for his regular expenses, which adds up to $1,350 ($200 for food + $100 for utilities + $900 for rent + $50 for transportation + $100 for entertainment). The precautionary demand is the amount he keeps for unexpected expenditures, which is $300. Since he pays for everything with cash and doesn't save any part of it as assets, the asset demand is $0.

John Gets Paid Monthly and Pays for Everything with Cash