In the Baumol-Tobin model, the benefit of holding money is:
A)the interest forgone.
B)convenience.
C)the lower risk and higher return compared to other assets.
D)the interest elasticity of money demand.

Question

Quizplus · Accepted Answer

In the Baumol-Tobin model, the benefit of holding money is convenience. This means that individuals and firms hold money to be able to make transactions easily and quickly without having to go through the cumbersome process of converting other assets into money for each transaction. The model assumes that individuals balance the cost of holding money in terms of the forgone interest against the benefits of holding money in terms of convenience.

In the Baumol-Tobin Model, the Benefit of Holding Money Is