The Baumol model describes money demand as a tradeoff between liquidity and interest rate returns. It assumes consumers can keep income as cash or in savings accounts. Cash earns no interest while savings accounts pay interest i, the opportunity cost of holding cash. Consumers minimize costs by choosing the optimal number of trips N to the bank to withdraw cash. Their average money holdings is Y/2N. The Baumol-Tobin money demand function shows real money demand depends positively on income and withdrawal costs, and negatively on the interest rate.