Money & Finance · intro
What moves on the Baumol-Tobin Money Demand diagram
Money demand rises with the square root of spending, doubling bY raises M* by only √2.
Start at the optimum.
Your monthly spending doubles, trips to the bank hurt more at every cash level.
Optimal holdings rise, but NOT double: √2 ≈ 1.4×. Economies of scale in cash management, on one graph.
Examiners ask this as: spending cash demand, transactions rise.
Other scenarios on Baumol-Tobin Money Demand