In Friedman's theory, the return on money varies and increases above zero.

Question

Quizplus · Accepted Answer

Friedman's theory, part of the monetarist framework, posits that the demand for money is a function of several factors, including the return on money. While traditional liquidity preference theory suggested the return on money is zero (since holding cash does not accrue interest), Friedman argued that people hold money for its utility in transactions and its relative return compared to other assets, implying that the return on money, in a broader sense including its liquidity premium, varies and can be considered as being above zero due to its convenience and services it provides.

In Friedman's Theory, the Return on Money Varies and Increases