In the ATM model of the demand for cash
A)both the nominal interest rate and the cost of going to an ATM are endogenous variables.
B)both the nominal interest rate and the cost of going to an ATM are exogenous variables.
C)the nominal interest rate is an exogenous variable while the average cash balances is an endogenous variable.
D)the nominal interest rate is an endogenous variable while the cost of going to an ATM is an exogenous variable.

Question

Quizplus · Accepted Answer

In the ATM model of the demand for cash, the nominal interest rate is usually taken to be exogenously determined by the central bank, while the average cash balances are endogenously determined by the behavior of the consumers who have to decide how much cash to hold for transactions. The cost of going to an ATM is also endogenously determined, as it depends on the behavior of the ATM network providers and the banks that set the fees for using ATMs. Therefore, the best choice is C, where the nominal interest rate is an exogenous variable and the average cash balances are an endogenous variable.

In the ATM Model of the Demand for Cash