Given these assumptions, how would a rational person (household) decide how much of
monthly income to hold as money and how much to hold as interest-bearing bonds? Suppose Jim
decides to deposit his entire paycheck in his checking account. Let us say that Jim earns $1,200
per month. The pattern of Jim’s bank account balance is illustrated in Figure 11.2. At the beginning
of the month, Jim’s balance is $1,200.