Answered step by step
Verified Expert Solution
Question
1 Approved Answer
The table below indicates annual income, transaction cost of withdrawal (brokerage fee) and interest rate Joy had to consider in her demand for money
The table below indicates annual income, transaction cost of withdrawal (brokerage fee) and interest rate Joy had to consider in her demand for money decision in 2010 and 2017 respectively. Using Baumol's inventory-theoretic approach to the demand for money: Total annual income 2010 2017 Brokerage fee Interest rate 12,200 C8 12% C21,000 C10 14% a. Find the amount of money Joy had to withdraw in 2010 and 2017. respectively, in order to minimize cost. [6 marks] b. Estimate the percentage change in her annual income between 2010 and 2017 and compare it with the percentage change in average amount withdrawn within the same period. [3 marks] c. What accounts for the difference observed between Joy's income and average amount of cash withdrawn in (b) above? [2 marks] [2 marks] d. How many trips did Joy make to the bank in 2010 and 2017 respectively? e. Overall, what is the implication of an increase in the interest rate on Joy's average cash balance? [2 marks]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started