Money in your savings account earns interest

Reference no: EM131106456

Based on Baumol (1952). Money in your savings account earns interest at a 3% annual rate. Each time you go to the bank, you waste 15 minutes in line, and your time is worth $10 per hour. During each year, you need to withdraw $10,000 to pay your bills.

a. How often should you go to the bank?

b. Each time you go to the bank, how much money should you withdraw?

c. If your need for cash increases, will you go to the bank more often or less often?

d. If the interest rate increases, will you go to the bank more often or less often?

e. If the bank adds more tellers, will you go to the bank more often or less often?

Reference no: EM131106456

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