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Unformatted text preview: 5. Suppose, that you spend $11,000 per year on goods and services of which $6000 is with the use of credit cards and cheques, that it takes you on average 30 minutes to go to the bank, you earn $10 per hour and the nominal interest rate is 5%. According to the Baumol-Tobin model: i. What is your value of Y? ii. What is your value of F? iii. How many times should you go to the bank each year? iv. How much should you withdraw each time? 2 6. Suppose that commercial banks in their ongoing scheme to rob customers blind implement a $2 charge on customers for every transaction over 2 transactions a month, whether it be an ATM transaction or a visit to the teller. i. How do you think this $2 charge will affect the currency-deposit ratio? ii. According to the model of fractional reserve banking how does this charge affect the money supply? iii. Would this policy be a good policy to implement if the economy was in a downturn?...
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- Spring '10