The document summarizes the Baumol-Tobin model of money demand. The model assumes individuals plan to gradually spend a fixed amount over a year and must decide how much cash to hold on average versus keeping funds in interest-bearing accounts. There is a cost of foregone interest from holding cash but a cost for trips to the bank. The optimal solution minimizes total costs by balancing these factors. The model derives the money demand function where demand increases with income and decreases with the interest rate.