Optimal number of trips to the bank using baumol-tobin model

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Reference no: EM13998968

Suppose the nominal interest rate is i = 10%, the time cost of a round trip to the bank is $25 and annual expenditure is $72,000.

(a) If a consumer makes N trips to the bank how much interest do they give up during the period? What is the total time cost of those N trips?

(b) Calculate the optimal number of trips to the bank using the Baumol-Tobin model.

(d) What is average money holding?

Reference no: EM13998968

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