Money & Finance · intro
What moves on the Baumol-Tobin Money Demand diagram
Higher i steepens holding costs; optimal cash falls by the square-root rule M* = √(2bY/i).
Cash is convenient but earns nothing.
Rates spike, every idle dollar now visibly costs you.
The optimum slides left: hold less cash, visit the bank more. Money demand falls with the square root of i.
Examiners ask this as: rates cash holdings, opportunity cost money.
Other scenarios on Baumol-Tobin Money Demand