Final answer:
The total demand for money includes the sum of the transactions demand and the speculative demand for money. M1 and M2 are monetary aggregates that measure the total amount of money available in an economy for these transactions.
Step-by-step explanation:
The total demand for money is the sum of the transactions demand plus the speculative demand for money. The transactions demand is the money needed to carry out the everyday transactions. On the other hand, the speculative demand for money is the money that people choose to hold as a form of financial investment, when they expect changes in interest rates, or when there are uncertainties in the market.
The total amount of money in an economy that can carry out transactions is typically measured by the monetary aggregate M1 or M2. M1 includes coins, currency in circulation, and checkable or demand deposits. M2 includes M1 as well as other types of deposits such as savings deposits and time deposits.
Moreover, the demand for financial capital (money) also represents groups that are borrowing the money, including businesses that need to borrow to finance their investments and the federal government when it runs a budget deficit.