Quantity Theory of Money

1. The first chapter in the book is about the market and its inner workings. The book briefly explains the idea of supply and demand, in which the price of a certain good or service will reach the point where all the demand is equivalent to the supply. However, the value of something is not determined by its necessity, but its desire within society, as seen by the difference in cost between a diamond and life giving water. Markets operate as they do because people try to maximize the amount of utility for themselves. Nevertheless, a strict rationalism model cannot be used for predicting all the occurrences of a market because of the ever changing behavior of people; thus economists must take precautions against

Throughout our lives, we have moments that may impact us negatively and/or positively. In the short story “the money” by Junot Diaz we see his mother saving money to send to her parents in the Dominican Republic but his family is already in a struggle to survive. Then there was a turning point for the whole family, they were robbed. Diaz’s mother was enraged by the event “she cursed the neighborhood, she cursed the country, she cursed [his] father, and of course, she cursed [the] kids,” assuming that one of Diaz’s friends or his siblings’ friends had something to do with it (Diaz 3). Diaz suspected one of his friends and he was right. So, he then took it into his own hands and went to steal the money back. Once Diaz retrieved the money, he

(1) Explain what the Stable-Monetary-Unit Assumption is (10 points) and (2) provide an example of its application. (10 points)

To understand the poetry, it is important to know the poet. Dana Gioia is known as the face of Formalism. Formalist use the poetry elements of free verse, narratives, rhyme, and meter. In reality, Gioia fought for “poet’s freedom to use whatever style he or she felt was right for the poem” (Johnson 2011). His poetry often focuses on themes associated with life’s struggles and responsibilities of the middle-class. His second book The Gods of Winter appeared in 1991 and consists of poems created from grief after losing his young son to Sudden Infant Death (Mason 2015). Yet another short poem in the volume will make you laugh with its play on words until its meaning is understood. Dana Gioia’s poem “Money” demonstrates how the poet uses the poetic form of free verse, metaphors, a sarcastic tone and drab imagery to reveal a personal struggle between responsibilities, fitting in and his passion for poetry.

In a world governed by the rule of currency has a major effect toward the amount an individual owns. The current world economy, labor is required in order to supply services to whomever is willing to buy. The amount of money distributed and earned throughout the economy feeds the nation 's GDP, which shows the stability of the overall economy of that nation. There is an imaginary sequence that must be established in an economy in order to balance both labor and revenue to stabilize a country’s economy.

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

The primitive monetary instruments had a profoundly dynamic assistant nature, had no inborn quality. Their operation did not suggest the utilization of any particular item, but rather just the reference to a theoretical money related unit. Regardless of the possibility that the unique money related unit were symbolized by a given particular stock, this stock never took an interest in the operations, since what was implied was to make a conceptual reference to its worth, and not to trade different merchandise for it. Hence, currency was not, subsequently, created by a flash of brilliance, but rather originated from a need, and its development has reflected, at every time, the readiness of man to orchestrate its currency features to the reality of its economy. Perhaps even more importantly, invention of currency was the mother step in a new monetary system that has led to the birth of electronic banking and credit cards. To infer, pretty much as human advancement from viciousness to development has relied on upon the invention of currency, future advancement will rely on another definition and utilization of

In order to fully grasp the meaning of this statement an understanding of the money supply is necessary. The money supply is defined as the sum of the total circulation of money in the economy including deposits at chartered banks. Monetary economists share the view that there is a direct relationship between the money supply and the average price level of the economy; primarily, an increase in the money supply will cause prices (inflation) to rise. “At the end of 1969 money supply stood at about $28 billion. By the end of [1973] the supply had soared by more than 70 percent to about $48 billion” (Corcoran, 1974). It is this rapid increase in the money supply that resulted in inflation rates as high as 10% in 1974. Table 1 contains data on the percentage increase in the money supply and the percentage increase in the Consumer Price index (CPI) from 1962 to 1973. “The Consumer Price Index (CPI) is an indicator of changes in consumer prices experienced by Canadians. It is obtained by comparing, over time, the cost of a fixed basket of goods and services purchased by consumers” (Statistics Canada, 2015). The table depicts a link between money supply and prices; where the change in the growth of the money supply in one year has an effect on the CPI the following year. For example, the rate

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

At the end of an economic depression, the year 1898 proved to show that better times were coming. The money supply of the country was showing an increase once again. During 1898, the money supply of the United States has been increased by at least $500,000,000 (“Abundant Money” 1). Gold production and gold importation have added at least $200,000,000 to the stock. The net balance in the foreign trade account accounted for another $300,000,000 (“Abundant Money” 1). This increase in the money supply makes money cheap and easy. Its abundance was verified by the large holdings of the New York banks and of the National Treasury. Investment activity was very active and the purchase of bonds resulted in a steady rise in the prices of all first-class

By increasing or reducing the nominal interest rates, the money supply is either increased or reduced. When the rate goes up, people are not able to borrow, thus the money does not enter into circulation. But when the rates go down, people borrow in big numbers therefore increasing the money supply. So the monetary authority just needs to adjust the interest rates either upwards or downwards, and in-direct results will be reflected on the money on circulation.

“Money, Money Everywhere”, taken on March 10, 1960 in California, United States. The theme represented in the photograph is “Emerald Elegance”, chosen by the members of the Valley Panhellenic, for their Tuesday fashion show benefit scheduled at Sportsmen's Lodge. The black and white image indicates a certain era, to which the image belongs to, providing us with insight into life in 1960s. The photograph displays women, wearing green outfits whilst tying money on table centerpieces for St. Patrick's Day; from left, Mmes. William L. Davis III, Raymond Prichnow Jr. and Malvin A. Walden.

2. The money-measurement assumption which assumes that purchasing power of rupee is stable is a major limitation of the cost concept.

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.

1. The gold standard and the money supply. Under the gold standard all national governments promised to follow the “rules of the game”. This meant defending a fixed exchange rate. What did this promise imply about a country’s money supply? A country’s money supply was limited to the amount of gold held by its central bank or treasury. For example, if a country had 1,000,000 ounces of gold and its fixed rate of exchange was 100 local currency units per ounce of gold, that country could have 100,000,000 local currency units outstanding. Any change in its holdings of