If the return on stocks falls by 2% and the return on money falls by 2%, the predictions of Keynes's and Friedman's models of money demand would be the same, ceteris paribus.

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Quizplus · Accepted Answer

Both Keynes's and Friedman's models of money demand posit that the demand for money is inversely related to the return on other assets, including stocks. Therefore, if the return on stocks falls by 2%, the demand for money should increase, ceteris paribus. Similarly, if the return on money falls by 2%, the demand for money should decrease, ceteris paribus. In this scenario, both models would predict the same outcome, which is an increase in the demand for money.

If the Return on Stocks Falls by 2% and the Return