Answer to Question #321066 in Macroeconomics for Priyanshu

Question

According to milton frideman," the stability in the demand for money is just a behaivioural fact." Examine this statement with emperical evidence.

Answer 1

The relationships in the monetary sector are not only stable and predictable but are also indispensable for an understanding of behavior in other sectors of an economy, for instance, in explaining consumption expenditures. Thus Friedman says there are four factors which determine the demand for money. They are: price level, real income, rate of interest and rate of increase in the price level. The demand for money is unitarily elastic.