Do you think such volatility exists in the modern economy

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1. For Keynes, the speculative component of money demand was volatile. This made the demand for money and the money multiplier volatile, so that monetary policy became an unreliable tool for stabilization. What were Keynes's reasons for his assertion on volatility? Do you think such volatility exists in the modern economy? Has it increased or decreased over time?

2. For Friedman, the money-demand function was highly stable. This made the money- income multiplier highly stable, so that changes in the money supply had a strong impact on nominal national income. What were Friedman's reasons for his assertion on the stability of money demand?

Has the money demand function in recent years been stable in the sense of not possessing the type of volatility asserted by Keynes? Discuss.

In many economies in recent decades, the money-demand function has shifted over time due to ?nancial innovations. Have these shifts invalidated Friedman's assertion, or is this instability of a different kind from what Friedman and Keynes had in mind?

Reference no: EM13897815

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