You are an advisor to New York City Mayor Bill deBlasio. He is considering the p

Question

You are an advisor to New York City Mayor Bill deBlasio. He is considering the passage of a bill that would set limits on the amount of money that banks can charge non-account holders for the use of the bank’s automated teller machines. Currently, the banks charge non-account holders an average fee of $3.00 per transaction. Mayor deBlasio asks you to explain to him the likely effects of a proposal that would limit such fees to $2.00 per transaction. In an essay of 5-7 paragraphs that utilizes economic terminology, describe the nature of such a proposal and explain what you think the likely effects would be if the bill passed? Include a graph in your answer illustrating the effect of such a law.

Explanation / Answer

Reducing the amount of money the banks can charge non-account holders for the use of bank's automated teller machines will lead to increase in the use of such machines to withdraw cash. As a result, demand for money will increase, leading to the rightward shift in the money demand curve, leading to increased prices, and thus inflation in the economy.

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