Let's consider the effects of an introduction of the ATM machines (back inthe 1980s).Imagine that the cost of going to the bank and exchange money for bondsor bonds for money is y cookies. Imagine also that the nominal interest rate is R,the price level is P and the REAL income that consumers will want to spend is y.Imagine that the entire yearly income is transferred to their bank accounts at thebeginning of the year. Consumers consume continuously throughout the year.(a) What is the TOTAL cost of holding M dollars on average over the year?(Note: the total cost is the sum of the opportunity cost and the cost ofgoing to the bank N times a year).(b) What is the relation between the number of trips to the bank, N, and theaverage money demand, M?(c) What is the optimal money demand? What are the factors that affectmoney demand? Explain each factor INTUITIVELY.(d) What is the effect of the introduction of the ATM machine on p?(e) What is the effect of the introduction of the ATM machine on moneydemand?Imagine that the macroeconomy is best described by the CLASSICALMODEL.(f) What are the effects of the introduction of the ATM machine on real GDP,Yt, real consumption, ct, the real interest rate, r¿, and the price level, P?(make sure you analyze both the direct and indirect effects).Imagine now that prices are "sticky" and the world is best described by theKEYNESIAN MODEL.(g) What are the effects of the introduction of the ATM machine on real GDP,Yt, real consumption, ct, the real interest rate, rt, and the price level, P?What are the effects in the short run? What are the effects in the long run?(h) How does your answer differ from (g)?

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Let's conSider the effects of ah introduction of the ATM machines (back in the 1980s). Imagine that the cost of going to the bank and exchange money for bonds or bonds for money is y cookies. Imagine also that the nominal interest rate is R, the price level is P and the REAL income that consumers will want to spend is y. Imagine that the entire yearly income is transferred to their bank accounts at the beginning of the year. Consumers consume continuously throughout the year. (a) What is the TOTAL cost of holding M dollars on average over the year? (Note: the total cost is the sum of the opportunity cost and the cost of going to the bank N times a year). (b) What is the relation between the number of trips to the bank, N, and the average money demand, M? (c) What is the optimal money demand? What are the factors that affect

Let's conSider the effects of ah introduction of the ATM machines (back in the 1980s). Imagine that the cost of going to the bank and exchange money for bonds or bonds for money is y cookies. Imagine also that the nominal interest rate is R, the price level is P and the REAL income that consumers will want to spend is y. Imagine that the entire yearly income is transferred to their bank accounts at the beginning of the year. Consumers consume continuously throughout the year. (a) What is the TOTAL cost of holding M dollars on average over the year? (Note: the total cost is the sum of the opportunity cost and the cost of going to the bank N times a year). (b) What is the relation between the number of trips to the bank, N, and the average money demand, M? (c) What is the optimal money demand? What are the factors that affect

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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