Question

n the Baumol-Tobin model, if the nominal interest rate is 1%, the consumer's annual income is $36000, and every trip to the bank costs $20, then it is optimal for the consumer to visit the bank ___ times a year. 2 3 4 5

Answer 1

Answer:

In the Baumol-Tobin model, if the nominal interest rate is 1%, the consumer's annual income is $36000, and every trip to the bank costs $20, then it is optimal for the consumer to visit the bank three times a year.

Explanation:

The optimal number of visit to banks = (iY/2F)0.5

i = 1% = 0.01

Y = $36000

F = $20.

The optimal number of visit to banks = (iY/2F)0.5

The optimal number of visit to banks = (0.01 * 36000 / 2* 20)0.5

The optimal number of visit to banks = (9)0.5

The optimal number of visits to banks = 3.  

it is optimal for the consumer to visit the bank 3 times a year.