What kind of revenue stream is holding money between transactions for interest?
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A third approach to the demand for money is the inventory approach to transactions demand developed by both Baumol and Tobin. They show that there is a transactions need for money to smooth out the difference between income and expenditure streams, and that the higher the interest rate — the return on holding bonds instead of money — the smaller these transactions demand balances should be.
Transactions theories emphasise the role of money as a medium of exchange.
These theories highlight two important points:
(i) Money is a dominated asset;
(ii) People hold money, unlike other assets, to make purchases.
These theories seek to explain why people hold narrow measures of money M1, such as currency and deposits withdrawable by cheques, as opposed to holding assets that denominate them, such as savings accounts or Treasury Bills.
There are various theories of transactions demand for money. They differ from one another to some degree depending on the process of obtaining money and making transactions. But all these theories have a common theme they suggest that money has the cost of earning a low rate of return and the benefit of making transactions more convenient. People face a trade-off between these costs and benefits while deciding how much money to hold for carrying out the required number of transactions per period. In this context, we refer to the Baumol-Tobin model and see how the model explains the money demand function.
Transactions theories emphasise the role of money as a medium of exchange.
These theories highlight two important points:
(i) Money is a dominated asset;
(ii) People hold money, unlike other assets, to make purchases.
These theories seek to explain why people hold narrow measures of money M1, such as currency and deposits withdrawable by cheques, as opposed to holding assets that denominate them, such as savings accounts or Treasury Bills.
There are various theories of transactions demand for money. They differ from one another to some degree depending on the process of obtaining money and making transactions. But all these theories have a common theme they suggest that money has the cost of earning a low rate of return and the benefit of making transactions more convenient. People face a trade-off between these costs and benefits while deciding how much money to hold for carrying out the required number of transactions per period. In this context, we refer to the Baumol-Tobin model and see how the model explains the money demand function.
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Non-operating revenues refer to the money earned from a business's side activities. Examples include interest revenue
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