Let’s see what the Baumol–Tobin model says about how often you should go to the bank to withdraw cash.
a. How much do you buy per year with currency (as opposed to cheques or credit cards)? This is your value of Y
b. How long does it take you to go to the bank? What is your hourly wage? Use these two figures to compute your value of F.
c. What interest rate do you earn on the money you leave in your bank account? This is your value of i. (Be sure to write i in decimal form—that is, 6 percent should be expressed 0.06.)
d. According to the Baumol–Tobin model, how many times should you go to the bank each year, and how much should you withdraw each time?
e. In practice, how often do you go to the bank, and how much do you withdraw?
f. Compare the predictions of the Baumol– Tobin model to your behaviour. Does the model describe how you actually behave? If not, why not? How would you change the model to make it a better description of your behaviour?