(Money Demand) Suppose that you never carry cash. Your paycheck of $1,000 per month is deposited directly into your checking account, and you spend your money at a constant rate so that at the end of each month your checking account balance is zero.
a. What is your average money balance during the pay period?
b. How would each of the following changes affect your average monthly balance?]
i. You are paid $500 twice monthly rather than $1,000 each month.
ii. You are uncertain about your total spending each month.
iii. You spend a lot in the beginning of the month (e.g., for rent) and little at the end of the month.
iv. Your monthly income increases.