the quantity theory of money
DESCRIPTION
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 - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: The Quantity Theory of Money](https://reader036.vdocuments.us/reader036/viewer/2022081800/568161e3550346895dd1fc90/html5/thumbnails/1.jpg)
The Quantity Theory of MoneyExplain the causes of Inflation - Part 1
![Page 2: The Quantity Theory of Money](https://reader036.vdocuments.us/reader036/viewer/2022081800/568161e3550346895dd1fc90/html5/thumbnails/2.jpg)
List the 4 functions of Money
Money
Means of
differed
payment
Store of
Value
Means of
Exchange
Measure of
Value
![Page 3: The Quantity Theory of Money](https://reader036.vdocuments.us/reader036/viewer/2022081800/568161e3550346895dd1fc90/html5/thumbnails/3.jpg)
List the 7 qualities of Money
Money
Scarce
Durable
Stable in value
DivisiblePortable
Acceptable
Recognisable
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What would happen if money didn’t meet any of these functions
or qualities?
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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 PM = the Money SupplyV = the velocity of circulationP = the Price LevelQ = the no of goods & services purchased/output
![Page 6: The Quantity Theory of Money](https://reader036.vdocuments.us/reader036/viewer/2022081800/568161e3550346895dd1fc90/html5/thumbnails/6.jpg)
Crude Theory (QTOM)
MV ≡ QPHolds V & Q constant & blamesinflation on an increase in themoney supply as if V & Q are heldconstant & M then P must Discredited as evidence now shows that V & Q are not constant
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Sophisticated Theory (QTOM)
MV ≡ QPAll 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