Assume That the Nominal Interest Rate in an Economy Is

question 16

Essay

Assume that the nominal interest rate in an economy is 3 percent and the cost of going to the ATM is $1.50.You spend $5 each day, and there is also a 12 percent probability of having your cash lost or stolen.

a.What is your total cost of holding cash as a function of the number of days between trips to the ATM?
b.How often will you go to the ATM to minimize your costs?

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Definitions:

Critical Thinking

The objective analysis and evaluation of an issue in order to form a judgment.

Vague Recollection

A memory that is not clear or detailed but is rather indistinct or fuzzy.

Empirical Evidence

Information acquired by observation or experimentation that is used to confirm or disprove a hypothesis or theory.

Pop Psychology

A term for the concepts and theories about human mental life and behavior that are purportedly based on psychology and that find popularity among the general public.