Quantity theory of money

September then decide to not to. Now in December 2016, the Federal Reserve is now debating again, whether or not to increase interest rate. Some support it and others don’t. Based on the Quantity Theory of money and its relationship to interest rate, the overall effect would be neutral. The increase wouldn’t significantly change the current state of our economic, therefore the end result would be neutral, creating a balance between the inflation rate and nominal interest rate. Quantity theory of money is a theory that stated that the quantity of money available determines the price level and the growth rate based on the price level is used to determine the inflation rate. Therefore, the greater demand for goods and services causes the price of good and service to increase. The…

1. Classical Theory 1.1 View Classical economists are not well known for being, optimistic economists. Some of them think that the growth of the population would be too quick for the resources available. They thought that the government was not compelled to take part and attempt to fix this because, it would only escalate things and so in order to boost growth, free trade was to allow. The concept is known as Free Market approach. A lot of Adam Smith 's work was on this argument and…

paper centers specifically on the money theory postulated by Keynes. We focus on the flaws in the classical money theory and then move on to explain the Keynes money model, then work on the criticisms on it. Since it is believed in the 1960's 70's and even now that "Never trust any theory of money older than thirty years" The Classical Theory: The fundamental principle of the classical theory is that the economy is self regulating. Classical economists maintain that the economy is always…

Milton Friedman argues that the correlation between general price level and money supply is captured using the economic equation of exchange. MV=PY where Money supply/Quantity of money. On the other hand, V=Velocity of money circulation, while P and Y represent General Price and Real national income respectively. The according to Milton Friedman, the equation means that the total value of the quantity of money multiplied by velocity equals the money value acquired at the output. Regarding the…

According to Edward Bahaw, Money can be defined as anything which is generally acceptable as a means of settling a debt obligation. Money can also be defined a medium of exchange, standard of deferred payment, unit of account and a store of value. As persons need money to get things done, persons will demand and hold money for various reasons. Firstly money demanded can be defined as the amount of money a person holds in their possession. The three motives for holding money…

2.1.13 The Concept of Money supply According Layi (1999) money supply means the amount of money which is available in an economy in sufficiently liquid and spendable form. What constitute the components of this money supply depends on what has been officially accepted by monetary authorities of each country as the constituents of money supply for that country. Thus, each country‟s money supply definition may be unique. According to him the narrowest definition of money supply in modern time is…

# 2: Fixed Cost • Fixed Costs are the constant costs that do not change with the quantity of output. For example, the fixed costs of a firm will be the equipment purchased for making products. • The picture represents the theory of Fixed Cost. The shopping cart in Costco is a fixed cost of the company. Once the company purchases the shopping carts, no matter how many products the company have sold, the value of the shopping carts will not be affected. # 3: Public Goods • Public…

Inflation refers to rise or increase in prices and fall in the purchasing of the value of money. A problem tends to affect many countries worldwide. Among the countries that have been affected by this crisis, Zimbabwe is one of them. The problem always plunges many countries into long seasons of instability. It is one of the countries facing the problem of inflation for a longer period. The problem of inflation in Zimbabwe came because of bad government decisions on financial matters. This led…

Mill’s theories of pleasure and pain. However, Bentham believed that all actions taken by individuals ought to be carried out with the intention of creating the greatest well-being for the largest possible quantity. One must assess the value of decisions and how it will serve as an instrument in the future in accordance with the given actions foreseeable intensity, duration, certainty, remoteness, its fecundity (the chances of an action yielding the same kind of pleasure or pain) and it purity…

Theory of consumer choice Consumer choice denotes the decision an individual will have to make on the products or services they wish to purchase. Theory of consumer choice thus analyses how individuals decide to spend their money keeping in mind their preferences as well as budget constraints. It assumes that people will want to maximize their utility through an optimal combination of goods that they can afford. This theory has three underlying assumptions: The first being utility maximization,…