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classical friedman money demand theory

 classical friedman money demand theory Essay

п»їSample question about Classical and Friedman's Funds demand

The concept of the velocity involving refers to the typical turnover of the money source in romance to Low Domestic Product(GDP). Compare and contrast the concept of the velocity of money as recognized by Time-honored and Friedman. In your view, to what expand the velocity may has an affect on the economical activity. Clarify briefly the determinants of velocity of money.

(10 marks)

Suggested Response:

The Formula of Exchange

it was formulated by Fisher

the theory states that:

MV = PQ

Where Meters = amount of money in the economy

V sama dengan velocity pounds

P = measured average cost of good and services in the economy

Q sama dengan quantity of goods and services sold

according to the theory, in the event that velocity is usually constant, specific adjustment in money source will develop a predictable enhancements made on the total worth of goods and services. Therefore a direct marriage between money supply and GDP is evident. A rise in money supply may not boost the general price level if you have unemployment. When there is full work (as believed by Fisher), then a rise in money source will bring about an increase in basic price level. Any other elaboration at the discretion of the lecturer

( four marks: in the event no formula of the theory is given, one particular ВЅ signifies should be deducted)

Friedman's Contemporary Quantity Theory Of Money

It was formulated simply by Milton Friedman

Md = f ( Yp, rb – rm…. )

G

The theory asserts that a presented money supply will causes a predictable increase in the importance of goods and services produced Since speed represent the ratio of money share to nominal output, it really is affected by virtually any factor that influences the ratio. Profits pattern could affect velocity because they affect the amount of money placed by the home Factors that...

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