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
Economics is generally defined as the problem of how best to allocate limited resources, limited because needs are characterized as unlimited, but common sense tells us that rather

the table shows gasoline rates in US

Can identity economics explain some patterns observed in the Australian economy

THE KEYNESIAN THEORY OF CONSUMPTION FUNCTION The theory was developed during the Great Depression which plagued Europe and America.  During this time, there was excess capacit

Another vital relationship that is often referred to in economic analysis is the relationship between consumption expenditure andprice elasticity. From the law of demand, we know t

Blowing Safety Co. P/L manufactures safety parachutes for the airline industry. These are sold directly to the airline companies. Management expects to manufacture and sell around

Using Total Expenditure for Calculating National Income The expenditure approach centres on the components of final demand which generate production.  It thus measures GDP


The Determination of the Value Money   Since money is primarily a medium of exchange, the value of money means what money will buy.  If at one time a certain amount of money

Direct intervention   The government can also intervene directly in the economy to see that its wishes are carried out.  This can be achieved thorough: a.     Price and i