Econ402_Set6 - PS 6 Two Canonical Models(60 raw points ECON...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
PS 6 – Two Canonical Models (60 raw points) ECON 402, Prof. Bachmann Due: March 10 Explain all your answers. “Results only” means partial credit only. Staple and write legibly. No spiral stuff. Write on the top of the front page of the assignment you hand in: name, section number, section time and section GSI. The numbers in brackets are the subdivision of raw points for each question. I) The Baumol-Tobin Inventory Model of Money (Cash) Demand (30 raw points) Sarah – your old high school friend – now works for a living and receives a paycheck of $Y dollars per month (notice that here Y denotes nominal income for the sake of notational simplicity, whereas usually it denotes real income). Sarah is paid at midnight on the last day of the month, with a direct deposit into her interest bearing bank account. She spends all $Y during the month, so at the end of the month she has exactly zero dollars in her account. The account pays - at the end of the month - a nominal interest rate of R on the AVERAGE cash holdings per month, L . Only cash is accepted for transactions, so Sarah needs to walk to an ATM and pay a fixed cost $F per trip to get cash. Sarah wants to economize on trips, by
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern