Milton friedman-demand function , Managerial Economics

Milton Friedman makes the demand for money a function of the real per capital permanent income. in this study the demand function for money is stated as;

M/NPP= r( YP/NP) δ

Where:

M = nominal stock of money
N = population
Yp = permanent income
Pp = permanent prices

This latter version of the demand for money is not as different from the first version as it appears to be because the concept of permanent income is broad enough to include several variables used in the earlier version of the demand for money . permanent income is affected by yield on securities and human and non human wealth holdings.

According to Milton Friedman, on the basis of empirical evidence the demand for nominal cash balance is represented by the following equation.


M =(0.00323)(Yp/N)1.81 (NPp)

Where all the variables have the same definition as stated above except ,Yp which stands for the real permanent income . in the above form the equation expresses that ( assuming population and permanent prices to be constant ) a 1 per cent increase in real permanent income increase the de4mand for the nominal cash balances by 1.81 per cent. In other words, the Friedman equation for the demand for money indicates that the real permanent income elasticity for the demand for nominal cash balances is 1.81. according to Friedman the causal relationship runs from change in the money supply to change in income .

Posted Date: 12/1/2012 5:12:43 AM | Location : United States







Related Discussions:- Milton friedman-demand function , Assignment Help, Ask Question on Milton friedman-demand function , Get Answer, Expert's Help, Milton friedman-demand function Discussions

Write discussion on Milton friedman-demand function
Your posts are moderated
Related Questions
A firm faces a perfectly elastic demand for its output at a price of $6 per unit of output. The firm, Though, faces an upward-sloped labor supply curve of          E= 20w-120 W

Marris constraints of growth maximisation

Legal Sanction: A monopoly as stated above may be the result of a government sanction. The government of a country may legally permit a private monopoly or monopoly in the public s

CENTRAL BANK A modern central bank performs so many functions of different nature that it is difficult to give any brief yet accurate definition of a central bank. Any definiti

Elasticity of Demand As the law of demand establishes a relationship between quantity demanded and price for a product, it doesn't tell us exactly as how weak or strong the rel

A Retention bonus is an incentive paid to a key employee to retain them by a critical business cycle. This could be a transitional period (like mergers and acquisitions) to ensure

Measuring Point Elasticity on a Linear Demand Curve To explain the measurement of point elasticity of a linear demand curve, let's suppose that a linear demand curve is given b

Thinking about modifications in the model again: Go back to the original model again, but add a marginal propensity to invest, this is, suppose  that I = f ( i and Y). The MPI is d

Calculate point elasticity of demand for demand function Q=10-2p for decrease in price from Rs 3 to Rs 2

Real Vs Nominal GNP: "Deflating" by a price Index   One of the problems that confront economists when measuring GNP is that they have to use money as the measuring rod.  Thes