In the Baumol-Tobin model of money demand, the income elasticity of money demand is ____ and the interest elasticity is ____.
Tap an option to check your answer.
2 marks, −1MacroeconomicsDemand for money and monetary theoriesBaumol-Tobin transactions demand for moneyModerateabout 2 min
DSE 2005 Question 28: Demand for money and monetary theories
Answer and worked solution
Checking your account…
Plain-text version
In the Baumol-Tobin model of money demand, the income elasticity of money demand is and the interest elasticity is. (A) 1; -1 (B) 1; 0 (C) 1/2; -1/2 (D) 0; 1
Demand for money and monetary theories has come up 82 times in 7 exams since 2005.
What this question tests
This question is on Baumol-Tobin transactions demand for money, part of Demand for money and monetary theories in Macroeconomics.
Money demand as an inventory problem trading interest forgone against transaction costs.
TestStop has 7 past-paper questions on this subtopic.
Similar questions from other papers
- Given below are two statements: Assertion A: The nominal interest rate can be misleading guide to cost of borrowing. Reason R: The real interest rate is nominal rate of…
- According to the theory of Keynesian Liquidity Preference, demand for money
- In the context of Keynesian money demand, ceteris paribus, the real demand for money increases when
- Which of the following proposition of demand for money in Keynesian theory has a distinct break with classical theory of demand for money?
- The statement that "currency held in the hand yields no income" is given by
Question from the DSE 2005 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.