What factors determine the demand for money in the Baumol-Tobin analysis of transactions demand for money? How does a change in each factor affect the quantity of money demanded?
What will be an ideal response?
The factors are real income, the price level, interest rates, and the brokerage cost of shifting between money and bonds. Increases in real income increase money demand less than proportionately, since the model predicts scale economies in transactions demand. Increases in prices increase money demand proportionately, since the demand is for real balances. The quantity of money demanded varies inversely with interest rates, since interest is the opportunity cost of holding money. The brokerage fee is the cost of converting other assets (bonds) into money. An increase in this cost increases money demand.
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Donnie's Donuts incurs $450,000 per year in explicit costs and $200,000 in implicit costs. The bakery earns $800,000 in revenues and has $2 million in net worth. Based on this information, what is the accounting profit for Donnie's Donuts?
A) $150,000 B) $350,000 C) $600,000 D) $1.2 million
Describe some of the problems in testing the Heckscher-Ohlin theory
What will be an ideal response?