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Milton friedman
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5. Milton Friedman’s monumental Monetary
History of the United States empirically crushed
the Keynesian model with page after page of
data. Friedman concluded that “inflation is
always and everywhere a monetary
phenomenon.” And that has been that ever
since.(Supply of Money)
The easy-money advocates had a tough summer. In August alone, the price level
increased almost half a percent, raising the average annual rate of inflation for the
past three months to almost 5 percent. Wholesale prices, especially of raw
materials, have also been moving upwards, as has the “prices paid” index of the
Institute for Supply Management's survey of the manufacturing sector (the service
sector has had more mixed recent results). Across the board, the stats show a broad
consensus that we have switched from a deflationary trend to an inflationary one.
6. Milton Friedman was the one who laid great stress on general price level but more
importantly in influencing the level of economic activity. Keynes and his early
followers (EARLY KRYNESIANS) thought that Money was Unimportant or
“MONEY DOES NOT MATTER”.
FRIEDMAN RESTATED THE QUANTITY THEORY OF MONEY:-
d
M = k( r , r , r )PY
B E D d
This is FRIEDMAN MONEY DEMAND FUNCTION . Where M = Demand for
money. P is the Price level, Y is the level of Real Income. rB is the Rate of
interest of Bond, rE is the rate of return on the EQUITY BONDS, rD is the
rate of return on Durable Goods.
