Baumol and Tobin discuss how a(n) _____ in interest rates can decrease the _____ demand for money.
A) increase, transactions
B) decrease, transactions
C) increase, speculative
D) decrease, precautionary

Question

Quizplus · Accepted Answer

Baumol and Tobin's model suggests that an increase in interest rates makes holding money more costly (because the opportunity cost of holding money, rather than investing it, is higher). Therefore, individuals and businesses are likely to reduce the amount of money they hold for transaction purposes to minimize this cost.

Baumol and Tobin Discuss How A(n) _____ in Interest Rates