1. If brokerage fees go to zero, what does the Baumol-Tobin analysis suggest Grant Smith s average holdings of money should be?
2. In Tobin s analysis of the speculative demand for money, people will hold both money and bonds, even if bonds are expected to earn a positive return. Is this statement true, false, or uncertain? Explain your answer.
3. Both Keynes s and Friedman s theories of the demand for money suggest that as the relative expected return on money falls, demand for it will fall. Why does Friedman think that money demand is unaffected by changes in interest rates? Why did Keynes think that money demand is affected by changes in interest rates?
4 Why does Friedman s view of the demand for money suggest that velocity is predictable, whereas Keynes s view suggests the opposite?