According to the Baumol–Tobin model, what determines how often people go to the bank? What does...

According to the Baumol–Tobin model, what determines how often people go to the bank? What does this decision have to do with money demand?

Expert Solution

Baumol–Tobin model makes an assumption that there are two types of assets, money and bonds. Money does not pay interest but the Bonds pay; thus households make a decision on how much of their wealth to hold in bonds and money. The household can make use of only noninterest-bearing money for their purchases. Thus when they have money demand the household can draw money from their savings/brokerage account. But this conversion is not for free as involves time the expense associated with withdrawing funds and going to a bank, or any fixed expenses that must be paid to brokers. As the rate of spending of household’s on commodities is constant throughout the month, thus they visit the bank at regular intervals and withdraw the same money amount. The equation used is:

Rahul Sunny answered 1 year ago

Suppose the Baumol-tobin model of money demand is correct. The typical person has annual money income...

Suppose the Baumol-tobin model of money demand is correct. The typical person has annual money income of $80,000, the product of 40,000 real income and a price level of 2. The brokerage fee is $1. The money supply per person is $1000. What is the value of the nominal interest rate? why? Now suppose the fed wants to reduce nominal interest rate to 2% (.02). What will they need to do to the money supply - by how much and...

1. What determines the natural rate of unemployment? 2. In the Solow model, how does the...

1. What determines the natural rate of unemployment? 2. In the Solow model, how does the saving rate affect the steady-state level of income? How does it affect the steady-state rate of growth? 3. Why might an economic policymaker choose the Golden Rule level of capital? 4. In the Solow model, how does the rate of population growth affect the steady-state level of income? How does it affect the steady-state rate of growth?

According to Solow’s model of economic growth, what determines the rate at which a nation’s income...

According to Solow’s model of economic growth, what determines the rate at which a nation’s income per person grows? Based on that model, what can a nation’s government do (if anything) to increase that growth rate either temporarily or permanently? Give 2 specific examples.

Economic growth a. According to the Solow model of economic growth, what determines the growth rate of...

Economic growth a. According to the Solow model of economic growth, what determines the growth rate of real income per person in the very long run (steady state)? Explain. b. What public policies have been proposed to increase the rate of economic growth? Explain.

What is ethical behavior? According to the four-component model of ethical decision making, what determines whether...

What is ethical behavior? According to the four-component model of ethical decision making, what determines whether or not someone engages in ethical behavior?

An economist wondered if people who go grocery shopping on weekdays go more or less often...

An economist wondered if people who go grocery shopping on weekdays go more or less often on Fridays than any other day. She figured that if it were truly random, 20% of these shoppers would go grocery shopping on Fridays. She randomly sampled 75 consumers who go grocery shopping on weekdays and asked them on which day they shop most frequently. Of those sampled, 24 indicated that they shop on Fridays more often than other days. The economist conducts a...

According to the pluralist model of power, what protects people from the abuse of power by...

According to the pluralist model of power, what protects people from the abuse of power by any one group? In what ways does this work in the United States?

Job Withdrawal People often go through as dissatisfaction sours their commitment to the organization or their...

Job Withdrawal People often go through as dissatisfaction sours their commitment to the organization or their job. Draw from your own work experience. Think about a job dissatisfaction experience you went through. It can be in your current job or a job you recently held. 1. Overall, were you or the individual satisfied or dissatisfied with the job or volunteer work? 2. Which category was, or is most likely to, foster the dissatisfaction? Categories could include personal dispositions, tasks and...

What is it that determines the electrical potential of a cell? How does this potential change?...

What is it that determines the electrical potential of a cell? How does this potential change? What does the change of electrical potential determine?

According to Smith, what effect does the number of people participating in the economy have on...

According to Smith, what effect does the number of people participating in the economy have on society’s wealth? Why?

Question