4. In the Baumol-Tobin model, show that the optimal solution entails equality between the foregone interest costs a...
4. In the Baumol-Tobin model, show that the optimal solution entails equality between the foregone interest costs and total brokerage costs. (Use the fact that in the model, n, the number of times you sell bonds per period, is equal to PY/2M, where PY is money income and M is average money demand
1.Suppose the Baumol-Tobin model of money demand is correct. Everyone is alike and earns money income of $30,000/year. Brokers charge a fee of $2 for every transaction. The money supply is $1000 per person. What is the equilibrium nominal interest rate?Suppose the Fed wants to reduce the interest rate to 2% (.02). How much of an increase in the money supply per person is necessary to do so?2. In the Baumol-Tobin model, show that the optimal solution entails equality between...
In the Baumol-Tobin model, an increase in transaction costs reduces the number of times individuals exchange interest-bearing assets and money, thus lowering the demand for money. Explain statements is true or false