Milton friedman-demand function , Managerial Economics

Assignment Help:

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 .


Related Discussions:- Milton friedman-demand function

Wastes of monopolistic competition excess capacity, It indicates the amount...

It indicates the amount of output by that long run output of the firm under monopolistic competition falls short of the Ideal output. This is regarded as wastage in monopolistic co

what is the elasticity of labor demand , Asuume there are two inputs in th...

Asuume there are two inputs in the production function, labor & capital, and these two inputs are perfect substitutes. The existing technology permits one machine to do the work of

Exchange rate, Assume a floating exchange rate system. The Fed pursues an e...

Assume a floating exchange rate system. The Fed pursues an expansionary monetary policy. Draw how this would look on the graphs below. Mark the new equilibriums. Complete the table

Priciples, Principles of Managerial Economics points

Principles of Managerial Economics points

Explain the law of diminishing marginal returns, 1. Define 'Arc Elasticity'...

1. Define 'Arc Elasticity'. 2. Explain the law of 'Diminishing marginal returns'. 3. What is 'Prisoner's Dilemma', of non cooperative game? 4. What is 'Third degree Discrimation'?

Calculate maximize total revenue, A city has two newspapers. Demand for eit...

A city has two newspapers. Demand for either paper depends on its own price and the price of its rival. Demand functions for paper A & B respectively, measured in tens of thousands

Significance of managerial economics, discuss the significance of manageri...

discuss the significance of managerial economics in regards to business strategies employed by business entities currently operating in the global economy

Menu costs, Menu Costs   Why do firms not change their prices very  fre...

Menu Costs   Why do firms not change their prices very  frequently? Obviously, the costs of changing prices at  frequent intervals and in small amounts must be more  than the b

Theory of demand of managerial economics, Theory of Demand of managerial ec...

Theory of Demand of managerial economics According to Siegelman andSpencer "A business firm is an economic organisation that transforms productivity sources into goods which

Variable costs (vc), Variable Costs (VC) These are costs, which vary w...

Variable Costs (VC) These are costs, which vary with the level of production.  The higher the level of production, the higher will be the variable costs.  They are associated

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd