Transactions Motive refers to the desire to hold cash balances. Holding the cash balances which are necessary for everyday transactions of a firm is known as the transaction motive.
According to Khan and Jain,” The requirement of cash balances to meet routine cash needs is known as the transaction motive and such motive refers to the holding of cash to meet anticipated obligations whose timing is not perfectly synchronized with cash receipts.”
An economic actor’s desire to maintain enough funds in the bank account for writing checks on that account to meet daily requirements and wants is called the transactions motive. An individual with a higher income has a greater transaction motive than an individual with a lower income. It means that the individual wants more cash to spend more. As per Keynesian economics, it is one of the three motives persons or firms demand liquidity. The other two are precautionary motive and speculative motive.
Use of the Term in Sentences:
- The professor is discussing the transaction motive in the class.
- The company is keeping sufficient cash balances to fulfill the transaction motive.
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