Compare And Contrast Keyman And Keynesian Theory Of Money

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There are several differences between the theory of Demand for Friedman's money and the Keynesian theory. One of them is as follows: Friedman, expanding the number of assets that can serve as an alternative to money, found that the balance of the economy as a whole is affected by a combination of different interest rates. Keynes, for his part, combined all financial assets, except money, into one large group - bonds, since he believed that the profitability of different assets, as a rule, varies synchronously. If this is so, then the expected yield of the bonds will accurately reflect the expected return on other financial assets and will not need to include them in the demand function for money as independent variables.

Unlike Keynes, Friedman …show more content…

The second property of the demand function for money, allocated by Friedman, is its stability (stability). Unlike Keynes, Friedman suggested that random fluctuations in the demand for money are insignificant, and with the help of the demand function for money, it is possible to accurately determine the magnitude of this demand.

In summary, we can say that Friedman's theory uses the same approach; as in the theory of Keynes and the Cambridge school, but the motives for storing money were not considered in detail. Instead, Friedman used the theory of demand for financial assets to prove that the demand for money is a function of the permanent income and the expected return on financial assets compared with the expected return on money. There are two main differences between the theories of Friedman and Keynes. Friedman believed that a change in the interest rate had very little effect on the expected return on financial assets relative to money. Consequently, in contrast to Keynes, he argued that the demand for money is insensitive to the interest rate. In addition, Fridman believed that the function of demand for money is not subject to significant fluctuations and, therefore, can be considered stable. The speed of money circulation is predictable, and this does not contradict the conclusion of a quantitative theory that money is the determining factor of aggregate

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