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Describe the modern quantity theory of money


Describe the modern quantity theory of money



It was put forward by Friedman. According to this theory, money is just one of the many way in which wealth can be held. The other ways include consumer durable, all kinds of financial assets, property and human wealth. This theory postulates that money has a convenience yield in the sense that it saves time and effort in carrying out transactions.

- Demand for money is directly related with total wealth as long as wealth holders regard money as a normal good.
- Since rates of return on bonds and equities represent the opportunity cost of holding money, demand for money is inversely related to the expected rates of return on wealth.
- The higher the ratio of human to non-human wealth the greater will be the demand for money in order to compensate for limited the limited marketability of human wealth.
- Demand for money also depends on various factors that influence wealth holders’ tastes and preferences for money.
Dana05 answered the question on August 14, 2019 at 07:22

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