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

Profit maximization theory of business, critically analysis the profit maxi...

critically analysis the profit maximisation theory of business firm and illucidet the role of profit in business

Scarcity and oppotunity cost, how manager can apply scarcity and oppotunity...

how manager can apply scarcity and oppotunity cost in managerial decision making

Point elasticity of demand, Calculate point elasticity of demand for demand...

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

Homework, 1. What does a MNC have to consider that a domestic company does ...

1. What does a MNC have to consider that a domestic company does not, and how does this impact capital budgeting? in addition to the complications encountered in doing a capital bu

cyert and march''s behavior theory, What is Cyert and March's behavior the...

What is Cyert and March's behavior theory? What are the demerits.

Explain the demand for a commodity, Explain the demand for a commodity ...

Explain the demand for a commodity The functional relationship between demand for a commodity and its various determinants may be expressed mathematically in terms of a demand

Calculate the percentage of the disk space that must be free, Free disk spa...

Free disk space can be kept track of using a free list or a bit map. Disk addresses require D bits. For a disk with B blocks, F of which are free, state the condition under which t

Market price , Normal 0 false false false EN-IN X-NON...

Normal 0 false false false EN-IN X-NONE X-NONE

Calculate cost of a unit of labor, Suppose a firm's budget were large enoug...

Suppose a firm's budget were large enough to employ 100 units of either labor or capital, the cost of a unit of labor being the same as a unit of capital. The production function i

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