According to the Baumol-Tobin Demand for Money

question 34

Essay

According to the Baumol-Tobin demand for money:
a. if interest rates increase by 5 percent, what happens to the demand for money? (Give a specific numerical answer.)
b. if income increases by 5 percent, what happens to money demand? (Give a specific numerical answer.)
c. how does the inability of people to make fractional trips to the bank (e.g., one-half of a trip) alter the predicted income and interest rate elasticities?

---

Definitions:

External Transactions

Financial activities involving an entity and another party outside the entity, such as sales, purchases, and financing agreements.

Basic Accounting Equation

The fundamental principle of accounting: Assets = Liabilities + Equity, reflecting the balance of a company's financial position.

Internal Transactions

Financial activities that occur within an organization, affecting the internal accounts without involving any external entity.

Chronological Diary

A record of events or transactions arranged in the order of time occurrence, often used for maintaining personal or financial information.