The Baumol-Tobin Square-Root Formula Predicts That the Amount of Money

question 42

Multiple Choice

The Baumol-Tobin square-root formula predicts that the amount of money balances held should

• A)move in the opposite direction from the interest rate
• B)move in the same direction as the interest rate
• C)increase more than proportionally to increases in the cost of money transactions
• D)increase less than proportionally to increases in the level of income
• E)both A and D

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