Which of the following is a feature of the 'Quantity Theory of Money' in its modern restatement by Friedman?
A. Interest rates do not affect money demand
B. Money demand is a stable function of a limited number of variables and the velocity is predictable
C. Velocity is highly unstable and unpredictable
D. Only the transactions motive matters
Answer: Option B
Solution (By JKSSB Mock Tests)
Friedman’s restatement treats the demand for money as a stable function of permanent income, interest rates and other variables, implying that velocity, while not constant, is predictable.
Explanation:
Consumer equilibrium occurs at the point where the budget line is tangent to an indifference curve, equating the marginal rate of substitution with the price ratio.
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