Explain The Modern Quantity Theory And Liquidity Theory

Milton Friedman and John Keynes are two world renowned economist, with many similar and contrasting views that have helped set the foundation of our economy. Friedman 's ideology on subjects such as the Monetary Policy, Gold Standard, and the Theory of the consumption function are what made him a extremely impactful economist. Keynes has made his impact on the modern day world as well in many aspects. Both of these economists have helped pave the way to a better, more efficient economy.

Economist, Milton Friedman and John Maynard Keynes disagree on many of the economic policies and theories created by each individual. Each financial analyst has their own opinion when it comes to the Theory of the Consumption Function, monetary policy, and the free market. Friedman, a capitalist economist lays out of the benefits and importance of spending and earning money. While Keynes, a man who has more of a socialist view, finds many of Friedman’s theories ineffective.

A measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical currency circulating in the economy. The money supply is divided into two distinct categories: M1—assets that can be easily accessed and immediately used to purchase goods and service. These are referred to as liquid assets. Money deposited in checking accounts meets this criteria because checks represent demand deposits, as they are paid “on demand” for the cash in the account. This is money which is available immediately for spending and therefore fulfills the medium of exchange function of money. M2—all of M1 and assets that cannot be used directly as cash but can be easily be converted to cash. This monetary aggregate

4) Briefly describe money’s function from the view of economists and write down the definition of M1 and M2.

In “Unsolved Theoretical Questions”, Galbraith suggests the current and past debates about the concept of the NAIRU, and then raises several concerns about the validity and usefulness of the natural rate. The idea of the natural rate was invented by Milton Friedman (1968) and Edmund Phelps (1968). Specifically, it was Friedman’s presidential lecture that

Money supply basically means “money stocked” it is the total amount of monetary assets available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in

“Money is a means of payment, store value, and a unit of account” (Case, Fair, & Oster 2011). Money is our economy’s barter. Instead of providing goods and services to get other good and services, money is that form of exchange. For example, you can easily go to the store with money and buy a gallon of milk. Money is a store of value; for instance gold and silver. Money gives purchasing power from one period to another, in other words it can be (look for “USED”)r ver time. As mention in the class lectures, we rely on checking and saving accounts for this. Money is a unit of account; it provides a common base for prices. We can add up goods to their dollar and cent value.

The economic and political problems of the 60’s and 70’s have left a huge influence on the ideas and actions of politicians today. From stagflation to the Vietnam War many politicians use these past issues to justify their policies of today. One of the most influential economists who emerged in the sixties was Milton Friedman, who fought against the establishment’s Keynesian view and many of the policies of FDR. He won a Nobel Prize in 1976 for his work in monetary policy with specific beliefs in controlling the federal debt, keeping inflation low, and ideals of a lassiez-faire market. His ideals influenced some of Regan’s policies of deregulation and tax cuts and drives most of the economic policies of the modern Republican Party. One of

Milton Friedman is the author of many books and two public television series that he did with his wife Rose: Free to Choose(1980) and Tyranny of the Status Quo(1984). His most important books include Free to Choose and Tyranny of the Status Quo( both of which compliment the TV series), Capitalism and Freedom(1962 with Rose D. Friedman); and Bright Promises, Dismal Performance (1983), which consists mostly of reprints of tri-weekly columns that he wrote for Newsweek from 1966 to 1983. Also, A Theory of the Consumption Function(1957) and A Monetary History of the U.S.(1963 with A.J. Schwartz).

Money is considered to be a medium of exchange, a unit of account, and a store of value. Medium of exchange means that money is the intermediary instrument that facilitates the exchange of goods. It is also considered to be a unit of account which means it is something that can be used for value for goods and services, record debts, and make calculations. A unit of account, is divisible, fungible, and countable. Lastly money is classified as a store of value meaning it can be stored away through savings and keep its value for later use. The creation of money occurred because of the complexity of exchange in ancient times. Goods and services were exchanged; however, they were unbalanced. Some valued items or services as higher than others. This flaw in the barter exchange led to the invention of an economic system with money as the focus so there was a set value.

monetary aggregates, whose main policy tool was an interest rate. The switch from pro-cyclical to anti-cyclical monetary

Among Time magazine’s most important people of the century in 1999, John Maynard Keynes (5 June 1883 - 21 April 1946), was widely considered to be one of the most influential economists of the 20th century and the founder of modern macroeconomics. The magazine stated “his radical idea that governments should spend money they don’t have may have saved capitalism.” In addition to being an economist, Keynes also served the British Civil Service, directed the Bank of England, and was part of the Bloomsbury Group of intellectuals. Fundamentally, his ideas changed the practice and theory of macroeconomics and the economic policies of governments. Many of his ideas are revolutionary, known as Keynesian economics, that can define virtually all economists who came after him.

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

The two primary components of government revenue sources are taxes and borrowing money. Most governments operate in two modes by using both monetary policy and fiscal policy to help stabilize the ecomony as well as achieve certain economic goals. In the U.S. the Federal Reserve, known as “the Fed”, is a governmental agency in which their most important task is to regulate the nation’s money supply (Miller p. 331). Monetary policy consists of deliberate changes in the money supply to influence interest rates and thus influencing spending in the economy. Key factors that the Fed uses to influence the price and quantity money will be explored along with the reasons why people desire to possess it. Money is the medium that is primarilly used for the exchange of goods and services.

In Friedman’s monetarist construct of money has two side that is highly active. One of the side is money is being the cause of all failures and asymmetries in the economy (in the short term). The other side is neutral which money is influencing only the price level (in the long term). The nominal quantity of money is determined by its supply. On the other hand, the real volume of the money stock is expressed in the amount of goods and services that can be acquired for a given nominal amount of money and is conditioned by the demand for money, which is directly related to the price level.