(Answered) Interest rate on checking accounts

Economics

Problem: Italy makes a great case study of the effects of the spread of ATMs on the demand for money. In Italy, virtually all checking accounts pay interest. What doesn't pay interest is cash.

A study found that the demand for cash responds to changes in the interest rate paid on checking accounts. The higher the interest rate, the less cash held.

In other words, when the interest rate on checking accounts rises, people go to ATM machines more often and take out less in cash each time, thereby keeping, on average, more in checking accounts earning the higher interest rate.

Discussion Question: Suppose most or all ATM machines increased the fee they charged per transaction. What would this do to the transaction demand for money? Please show steps how you get an answer and please be clear in your explanation.

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Basic Economics, Economics

Category:- Basic Economics
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Interest rate on checking accounts Problem: Italy makes a great case study of the effects

Problem: Italy makes a great case study of the effects of the spread of ATMs on the demand for money. In Italy, virtually all checking accounts pay interest. What doesn't pay interest is cash. A study found that the dema ...

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