The Baumol-Tobin analysis suggests that a decrease 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;decrease
D)decrease;increase

Question

Quizplus · Accepted Answer

The Baumol-Tobin model suggests that lower transaction costs (such as brokerage fees) make it cheaper to convert bonds into money and vice versa. This leads to a decrease in the demand for money (as people are more willing to hold bonds instead of money due to lower conversion costs) and an increase in the demand for bonds (as it becomes cheaper to buy and sell them).

The Baumol-Tobin Analysis Suggests That a Decrease in the Brokerage