SlideShare uma empresa Scribd logo
1 de 12
Baixar para ler offline
QUANTITY THEORY OF
MONEY
STATEMENT:
The quantity theory of money states that “There is a direct relationship between the quantity of
money in an economy and the level of prices of goods and services sold.”
And,
The quantity theory of money states that ”There is a inverse relationship between the quantity of
money in an economy and the value of the money.”
That means,
Quantity of money =
1
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑀𝑜𝑛𝑒𝑦
Quantity of money ∝Prices of Goods and Services.
PriceLevel
Quantity of Money Quantity of Money
ValueofMoney
P3
P2
P1
M1 M2 M3
V1
V2
V3
M1 M2 M3
Y Y
XX
GRAPH ILLUSTRATION:
Quantity of money
Prices of goods and
services
Quantity Theory of Money
Among these approaches, Fisher’s Transaction Approach is widely used and most popular.
It was developed by an American Economist Irving Fisher in 1911, in his famous book “The
Purchasing Power Of Money.” Sometimes it is called as “Neo- Quantity Theory.”
Fisher’s
Transaction
Approach
Friedman’s
Quantity
Theory of
Money
Cambridge
Cash Balance
Approach
Keynesian
Theory of
Money
FISHER’S TRANSACTION APPROACH
Fisher’s transaction approach to the Quantity Theory of Money is explained with the following
Equation of Exchange.
Where,
M = Supply of Money
V = Velocity of Money
P = Price level of goods and services
T = Total amount of goods and services
MV = Supply of Money
PT = Demand of Money
MV PT
Velocity of Money is defined as the number of hands of exchange of money or
Velocity of Money is defined as the number of times money changes hands.
Money supply is the total value of monetary assets available in an economy at a
specific time. It includes currency in circulation and demand deposits.
3
But later Fisher modified the Equation of Exchange as,
Where,
M’ = Bank Deposits
V’ = Velocity of Money (Transfer in Bank)
Under this Approach,
V , M’V’ and T are unchanged or constant. If these three remains constant,
M ∝ P
MV PTM’V’
ASSUMPTIONS OF FISHER’S TRANSACTION APPROACH
 Constant Velocity of Money
 Constant Volume of Trade and Transaction
 Price Level is a Passive Factor
 Money is only a Medium of Exchange
 Direct Relationship between M and M’
 Long Period
(When V , M’V’ and T are constant for long period of time, then Money supply is directly
proportional to Price level.)
CONCLUSION:
1)
Prices
Monetary Policy
(RBI)
Supply of Money
(Medium of Exchange)
Demand of Money
2) There is a relationship between Money supply, Inflation and Monetarism. Increase
in Money supply for short period of time can offer a quick-fix boost to a staggering
economy in need of increased production. In the long term, increase in money supply
have affect on real economic activity (Production, Employment level, Spending, etc.)
that tends to decline in economy of a country.
3) According to QTM, if the amount of money in an economy doubles, price levels also
double, causing inflation (the percentage rate at which the level of prices is rising in an
economy). Thus, the consumer pays twice as much for the same amount of the good or
service.
4) Inflation affect the purchasing power of the consumer. It is the value of a currency
expressed in terms of the amount of goods or services that one unit of money can
buy. Purchasing power is important because, all else being equal, inflation decreases
the amount of goods or services you would be able to purchase.
Quantity theory of money

Mais conteúdo relacionado

Mais procurados (20)

A Presentation on IS-LM Model
A Presentation on IS-LM ModelA Presentation on IS-LM Model
A Presentation on IS-LM Model
 
Philip's Curve
Philip's CurvePhilip's Curve
Philip's Curve
 
Demand for money
Demand for moneyDemand for money
Demand for money
 
Quantity Theory of Money
Quantity Theory of MoneyQuantity Theory of Money
Quantity Theory of Money
 
Inflation And Types of Inflation
Inflation And Types of InflationInflation And Types of Inflation
Inflation And Types of Inflation
 
Investment function
Investment functionInvestment function
Investment function
 
Quantity theory of money
Quantity theory of moneyQuantity theory of money
Quantity theory of money
 
Balance of payment theory
Balance of payment theoryBalance of payment theory
Balance of payment theory
 
Liquidity preference theory
Liquidity preference theoryLiquidity preference theory
Liquidity preference theory
 
Patinkin real balance effect
Patinkin real balance effectPatinkin real balance effect
Patinkin real balance effect
 
1 say's law of markets
1 say's law of markets1 say's law of markets
1 say's law of markets
 
Theory of interest
Theory of interestTheory of interest
Theory of interest
 
Liquidity preference theory
Liquidity preference theory Liquidity preference theory
Liquidity preference theory
 
Supply of money
Supply of money Supply of money
Supply of money
 
Investment function
Investment function Investment function
Investment function
 
Money Market: Demand for Money
Money Market: Demand for MoneyMoney Market: Demand for Money
Money Market: Demand for Money
 
THE THEORY OF MONEY
THE THEORY OF MONEYTHE THEORY OF MONEY
THE THEORY OF MONEY
 
Supply of Money
Supply of MoneySupply of Money
Supply of Money
 
Theories of Business Cycles
Theories of Business CyclesTheories of Business Cycles
Theories of Business Cycles
 
Determinant of Money Supply
Determinant of Money SupplyDeterminant of Money Supply
Determinant of Money Supply
 

Semelhante a Quantity theory of money

Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit iiDhina Karan
 
Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit iiDhina Karan
 
MB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& BankingMB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& Bankingfaiqaishtiaq
 
Nani quantitative theory of money
Nani quantitative theory of moneyNani quantitative theory of money
Nani quantitative theory of moneyVikram g b
 
Monetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of MoneyMonetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of MoneySaradha Shyam
 
The concept of the quantity theory of money
The concept of the quantity theory of moneyThe concept of the quantity theory of money
The concept of the quantity theory of moneyMBSAEED
 
M b chapter_2 (1)
M b chapter_2 (1)M b chapter_2 (1)
M b chapter_2 (1)Nisar Rind
 
Patinkin Money theory
Patinkin Money theoryPatinkin Money theory
Patinkin Money theoryRashidNasir3
 
Quantity theory of money
Quantity theory of moneyQuantity theory of money
Quantity theory of moneyyabadadoo
 
Inflation SFLS types
Inflation SFLS typesInflation SFLS types
Inflation SFLS typesianhorner3
 
Cambridge Theory of Money also known as the Cambridge Cash Balance Approach
Cambridge Theory of Money also known as the Cambridge Cash Balance ApproachCambridge Theory of Money also known as the Cambridge Cash Balance Approach
Cambridge Theory of Money also known as the Cambridge Cash Balance Approachalkarathi1
 
quantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and studentsquantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and studentsMengsongNguon
 
MACROECONOMICS-CH4
MACROECONOMICS-CH4MACROECONOMICS-CH4
MACROECONOMICS-CH4kkjjkevin03
 
Chapter15 monetarytheory-and-policy-140831163822-phpapp02
Chapter15 monetarytheory-and-policy-140831163822-phpapp02Chapter15 monetarytheory-and-policy-140831163822-phpapp02
Chapter15 monetarytheory-and-policy-140831163822-phpapp02Siphokazi Mavuso
 

Semelhante a Quantity theory of money (20)

Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit ii
 
Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit ii
 
MB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& BankingMB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& Banking
 
Nani quantitative theory of money
Nani quantitative theory of moneyNani quantitative theory of money
Nani quantitative theory of money
 
Monetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of MoneyMonetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of Money
 
The concept of the quantity theory of money
The concept of the quantity theory of moneyThe concept of the quantity theory of money
The concept of the quantity theory of money
 
M b chapter_2 (1)
M b chapter_2 (1)M b chapter_2 (1)
M b chapter_2 (1)
 
Money
MoneyMoney
Money
 
classical.pptx
classical.pptxclassical.pptx
classical.pptx
 
Rajesh PPT.pptx
Rajesh PPT.pptxRajesh PPT.pptx
Rajesh PPT.pptx
 
Patinkin Money theory
Patinkin Money theoryPatinkin Money theory
Patinkin Money theory
 
Quantity theory of money
Quantity theory of moneyQuantity theory of money
Quantity theory of money
 
Inflation SFLS types
Inflation SFLS typesInflation SFLS types
Inflation SFLS types
 
Cambridge Theory of Money also known as the Cambridge Cash Balance Approach
Cambridge Theory of Money also known as the Cambridge Cash Balance ApproachCambridge Theory of Money also known as the Cambridge Cash Balance Approach
Cambridge Theory of Money also known as the Cambridge Cash Balance Approach
 
quantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and studentsquantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and students
 
MACROECONOMICS-CH4
MACROECONOMICS-CH4MACROECONOMICS-CH4
MACROECONOMICS-CH4
 
6 1 money and inflation
6 1 money and inflation6 1 money and inflation
6 1 money and inflation
 
Money money
Money moneyMoney money
Money money
 
Functions of money
Functions of moneyFunctions of money
Functions of money
 
Chapter15 monetarytheory-and-policy-140831163822-phpapp02
Chapter15 monetarytheory-and-policy-140831163822-phpapp02Chapter15 monetarytheory-and-policy-140831163822-phpapp02
Chapter15 monetarytheory-and-policy-140831163822-phpapp02
 

Último

Diploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdfDiploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdfMohonDas
 
What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?TechSoup
 
How to Use api.constrains ( ) in Odoo 17
How to Use api.constrains ( ) in Odoo 17How to Use api.constrains ( ) in Odoo 17
How to Use api.constrains ( ) in Odoo 17Celine George
 
How to Make a Field read-only in Odoo 17
How to Make a Field read-only in Odoo 17How to Make a Field read-only in Odoo 17
How to Make a Field read-only in Odoo 17Celine George
 
The Singapore Teaching Practice document
The Singapore Teaching Practice documentThe Singapore Teaching Practice document
The Singapore Teaching Practice documentXsasf Sfdfasd
 
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptxClinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptxraviapr7
 
How to Add Existing Field in One2Many Tree View in Odoo 17
How to Add Existing Field in One2Many Tree View in Odoo 17How to Add Existing Field in One2Many Tree View in Odoo 17
How to Add Existing Field in One2Many Tree View in Odoo 17Celine George
 
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRADUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRATanmoy Mishra
 
Human-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming ClassesHuman-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming ClassesMohammad Hassany
 
CAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxCAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxSaurabhParmar42
 
UKCGE Parental Leave Discussion March 2024
UKCGE Parental Leave Discussion March 2024UKCGE Parental Leave Discussion March 2024
UKCGE Parental Leave Discussion March 2024UKCGE
 
Prescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptxPrescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptxraviapr7
 
Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.EnglishCEIPdeSigeiro
 
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...Nguyen Thanh Tu Collection
 
Patterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptxPatterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptxMYDA ANGELICA SUAN
 
3.21.24 The Origins of Black Power.pptx
3.21.24  The Origins of Black Power.pptx3.21.24  The Origins of Black Power.pptx
3.21.24 The Origins of Black Power.pptxmary850239
 
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxPractical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxKatherine Villaluna
 
Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...raviapr7
 
How to Manage Cross-Selling in Odoo 17 Sales
How to Manage Cross-Selling in Odoo 17 SalesHow to Manage Cross-Selling in Odoo 17 Sales
How to Manage Cross-Selling in Odoo 17 SalesCeline George
 

Último (20)

Diploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdfDiploma in Nursing Admission Test Question Solution 2023.pdf
Diploma in Nursing Admission Test Question Solution 2023.pdf
 
What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?
 
How to Use api.constrains ( ) in Odoo 17
How to Use api.constrains ( ) in Odoo 17How to Use api.constrains ( ) in Odoo 17
How to Use api.constrains ( ) in Odoo 17
 
How to Make a Field read-only in Odoo 17
How to Make a Field read-only in Odoo 17How to Make a Field read-only in Odoo 17
How to Make a Field read-only in Odoo 17
 
The Singapore Teaching Practice document
The Singapore Teaching Practice documentThe Singapore Teaching Practice document
The Singapore Teaching Practice document
 
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptxClinical Pharmacy  Introduction to Clinical Pharmacy, Concept of clinical pptx
Clinical Pharmacy Introduction to Clinical Pharmacy, Concept of clinical pptx
 
How to Add Existing Field in One2Many Tree View in Odoo 17
How to Add Existing Field in One2Many Tree View in Odoo 17How to Add Existing Field in One2Many Tree View in Odoo 17
How to Add Existing Field in One2Many Tree View in Odoo 17
 
Finals of Kant get Marx 2.0 : a general politics quiz
Finals of Kant get Marx 2.0 : a general politics quizFinals of Kant get Marx 2.0 : a general politics quiz
Finals of Kant get Marx 2.0 : a general politics quiz
 
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRADUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
 
Human-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming ClassesHuman-AI Co-Creation of Worked Examples for Programming Classes
Human-AI Co-Creation of Worked Examples for Programming Classes
 
CAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxCAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptx
 
UKCGE Parental Leave Discussion March 2024
UKCGE Parental Leave Discussion March 2024UKCGE Parental Leave Discussion March 2024
UKCGE Parental Leave Discussion March 2024
 
Prescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptxPrescribed medication order and communication skills.pptx
Prescribed medication order and communication skills.pptx
 
Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.
 
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
CHUYÊN ĐỀ DẠY THÊM TIẾNG ANH LỚP 11 - GLOBAL SUCCESS - NĂM HỌC 2023-2024 - HK...
 
Patterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptxPatterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptx
 
3.21.24 The Origins of Black Power.pptx
3.21.24  The Origins of Black Power.pptx3.21.24  The Origins of Black Power.pptx
3.21.24 The Origins of Black Power.pptx
 
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxPractical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
 
Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...
 
How to Manage Cross-Selling in Odoo 17 Sales
How to Manage Cross-Selling in Odoo 17 SalesHow to Manage Cross-Selling in Odoo 17 Sales
How to Manage Cross-Selling in Odoo 17 Sales
 

Quantity theory of money

  • 2. STATEMENT: The quantity theory of money states that “There is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold.” And, The quantity theory of money states that ”There is a inverse relationship between the quantity of money in an economy and the value of the money.” That means, Quantity of money = 1 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑀𝑜𝑛𝑒𝑦 Quantity of money ∝Prices of Goods and Services.
  • 3. PriceLevel Quantity of Money Quantity of Money ValueofMoney P3 P2 P1 M1 M2 M3 V1 V2 V3 M1 M2 M3 Y Y XX GRAPH ILLUSTRATION:
  • 4. Quantity of money Prices of goods and services
  • 5. Quantity Theory of Money Among these approaches, Fisher’s Transaction Approach is widely used and most popular. It was developed by an American Economist Irving Fisher in 1911, in his famous book “The Purchasing Power Of Money.” Sometimes it is called as “Neo- Quantity Theory.” Fisher’s Transaction Approach Friedman’s Quantity Theory of Money Cambridge Cash Balance Approach Keynesian Theory of Money
  • 6. FISHER’S TRANSACTION APPROACH Fisher’s transaction approach to the Quantity Theory of Money is explained with the following Equation of Exchange. Where, M = Supply of Money V = Velocity of Money P = Price level of goods and services T = Total amount of goods and services MV = Supply of Money PT = Demand of Money MV PT
  • 7. Velocity of Money is defined as the number of hands of exchange of money or Velocity of Money is defined as the number of times money changes hands. Money supply is the total value of monetary assets available in an economy at a specific time. It includes currency in circulation and demand deposits. 3
  • 8. But later Fisher modified the Equation of Exchange as, Where, M’ = Bank Deposits V’ = Velocity of Money (Transfer in Bank) Under this Approach, V , M’V’ and T are unchanged or constant. If these three remains constant, M ∝ P MV PTM’V’
  • 9. ASSUMPTIONS OF FISHER’S TRANSACTION APPROACH  Constant Velocity of Money  Constant Volume of Trade and Transaction  Price Level is a Passive Factor  Money is only a Medium of Exchange  Direct Relationship between M and M’  Long Period (When V , M’V’ and T are constant for long period of time, then Money supply is directly proportional to Price level.)
  • 10. CONCLUSION: 1) Prices Monetary Policy (RBI) Supply of Money (Medium of Exchange) Demand of Money
  • 11. 2) There is a relationship between Money supply, Inflation and Monetarism. Increase in Money supply for short period of time can offer a quick-fix boost to a staggering economy in need of increased production. In the long term, increase in money supply have affect on real economic activity (Production, Employment level, Spending, etc.) that tends to decline in economy of a country. 3) According to QTM, if the amount of money in an economy doubles, price levels also double, causing inflation (the percentage rate at which the level of prices is rising in an economy). Thus, the consumer pays twice as much for the same amount of the good or service. 4) Inflation affect the purchasing power of the consumer. It is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. Purchasing power is important because, all else being equal, inflation decreases the amount of goods or services you would be able to purchase.