Question

Friedman’s money demand function Md/P = f(Yp, rb, re, π,
w). A key implication that supports the Quantity Theory is:

A Money demand is highly sensitive to interest rates, making monetary policy powerful and velocity unpredictable
B Money demand is stable because permanent income is smooth, and velocity is predictable, restoring the classical link between money and nominal income
C Inflation (π) reduces money demand, causing hyperinflation to be self-correcting through reduced real money balances
D The inclusion of human wealth (w) makes Friedman’s demand function empirically unverifiable
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