In the Baumol-Tobin analysis of transactions demand for money,either an increase in ________ or a decrease in ________ increases money demand.
A)income;interest rate
B)interest rates;brokerage fees
C)brokerage fees;income
D)interest rate;income

Question

Quizplus · Accepted Answer

The Baumol-Tobin model suggests that an increase in income leads to more transactions and thus a higher demand for money. Similarly, a decrease in the interest rate reduces the opportunity cost of holding money (as opposed to investing it), also increasing the demand for money.

In the Baumol-Tobin Analysis of Transactions Demand for Money,either an Increase