Using the Baumol-Tobin Transactions Model, answer the following. Assume the following. The interest rate is 10%. The ATM fee (transaction cost) for withdrawing money is $2. My monthly income is $1,000. I make equal-sized cash withdrawals for each trip I go to the bank. Given this information, explain the following:
What is the optimal number of trips I will make to the ATM each month (N*)?
Given that N*, what is my optimal average monthly money demand (money in my wallet, not the bank)?
If I decide to go more often to the bank, why would this be less optimal? Explain
If I decide to go the bank less often, why would this be less optimal? Explain