According to the Friedman theory, if the difference between expected inflation and the return on money falls, the demand for money will rise.

Question

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According to the Friedman theory of the demand for money, if the expected inflation rate increases (reducing the real return on holding money) or if the nominal interest rate (the return on alternative assets) decreases, the cost of holding money decreases. This makes holding money more attractive compared to other assets, leading to an increase in the demand for money.

According to the Friedman Theory, If the Difference Between Expected