Answer 1C.

Assume that the nominal interest rate in an economy is 3% and the cost of going to the ATM is day, and there is also a 12% probability of having your cash lost or stolen. What is your total cost of holding cash as a function of the number of days between trips to the ATM? How often will you go to the ATM in order to minimize your costs? What is your average balance? Use the liquidity preference model in order to answer the following. Make sure to label ail things that need to be labeled. Illustrate the effects of an increase in income if prices are fixed in the short run. Use the diagram studied in class. What can the FED do in the short run if their goai is to maintain a constant interest rate? Explain and show the effects With another diagram