Baumol and Tobin developed monetary models that showed ________.
A) money balances held for transaction purposes are sensitive to the level of interest rates
B) money balances held for speculative purposes are sensitive to the level of interest rates
C) money balances held for transaction purposes are not sensitive to the level of interest rates
D) money balances held for wealth purposes are sensitive to the level of interest rates

Question

Quizplus · Accepted Answer

Baumol and Tobin's models demonstrated that money balances held for transaction purposes are sensitive to the level of interest rates, as individuals and firms adjust their cash holdings based on the opportunity cost of holding money versus earning interest.

Baumol and Tobin Developed Monetary Models That Showed ________