Which of the Following Is True of the Baumol Model

question 6

Multiple Choice

Which of the following is true of the Baumol model? Note that the optimal cash transfer amount is C*?

• A) If the fixed costs of selling securities or obtaining a loan (cost per transaction) increase by 20%, then C* will increase by 20%
• B) If the total amount of cash needed during the year increases by 20%, then C* will increase by 20%.
• C) If the average cash balance increases by 20%, then the total holding costs will increase by 20%.
• D) If the average cash balance increases by 20% the total transactions costs will increase by 20%.
• E) The optimal transfer amount is the same for all companies.

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Definitions:

Output Of Goods

The total quantity of products or services produced by a company, industry, or economy within a specific time period.

Economic Pie

A metaphorical representation of the total wealth or economic output available for distribution or sharing among a population or group.

Production Possibilities Curve

A graphical representation that shows the maximum possible output combinations of two goods or services an economy can achieve when all resources are fully and efficiently utilized.

Efficient

Characterizes a system or process that achieves its goals with minimal waste of time, resources, or effort.