According to the Baumol-Tobin model, an increase in the interest rate the demand for money, and an increase in expenditures the demand for money.
A)increases; increases
B)increases; decreases
C)decreases; increases
D)decreases; decreases

Question

Quizplus · Accepted Answer

The Baumol-Tobin model suggests that an increase in the interest rate decreases the demand for money because holding money becomes more costly. Conversely, an increase in expenditures increases the demand for money as more transactions require more cash on hand.

According to the Baumol-Tobin Model, an Increase in the Interest