1 / 8

The Quantity Theory of Money

The Quantity Theory of Money. Explain the causes of Inflation - Part 1. List the 4 functions of Money. List the 7 qualities of Money. What would happen if money didn’t meet any of these functions or qualities?. Quantity Theory of Money. MV ≡ QP

zubeda
Download Presentation

The Quantity Theory of Money

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. The Quantity Theory of Money Explain the causes of Inflation - Part 1

  2. List the 4 functions of Money

  3. List the 7 qualities of Money

  4. What would happen if money didn’t meet any of these functions or qualities?

  5. Quantity Theory of Money MV ≡ QP ≡ is called an identity. It means that the equation must always balance. M X V must always equal Q x P M = the Money Supply V = the velocity of circulation P = the Price Level Q = the no of goods & services purchased/output

  6. Crude Theory (QTOM) MV ≡ QP Holds V & Q constant & blames inflation on an increase in the money supply as if V & Q are held constant & M then P must  • Discredited as evidence now shows that V & Q are not constant

  7. Sophisticated Theory (QTOM) MV ≡ QP All Variable but V is relatively predictable. An increase in M is not the only factor which causes inflation (P to ). So there must be other factors, specifically changes to Q & V. If more goods and services produced then more money needed to pay for them, more money in circulation – moving around then……price level increases

  8. Money Supply…. • What is the money supply….?

More Related