The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money to ________ and the demand for bonds to ________.
A)increase;increase
B)increase;decrease
C)decrease;increase
D)decrease;decrease

Question

Quizplus · Accepted Answer

The Baumol-Tobin analysis suggests that an increase in the brokerage fee for buying and selling bonds will cause the demand for money to increase, as people will hold more money to avoid frequent transactions that incur higher fees. Consequently, the demand for bonds will decrease because the higher transaction costs make bonds less attractive.

The Baumol-Tobin Analysis Suggests That an Increase in the Brokerage