The Baumol-Tobin Model of Money Demand Suppose a household earns monthly income of Y= 2500 €, which is automatically deposited in his bank account. The household earns i = 3% interest on the balance in his bank account. Each withdrawal from the bank account creates a nominal transaction cost of T=100€. The household spends all his income at a constant rate on consumption, which can only be bought with cash. a) Determine the optimal number of money withdrawals from the bank account. b) Determine the optimal average money holding of this household.

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