The Conceptual Framework Of Quantity Theory Of Money Essay

1112 WordsAug 25, 20155 Pages
2.2 Conceptual Framework of Quantity Theory of Money A number of frameworks have been introduced by the economists regarding the concept of Quantity Theory of Money. Ajuzie Immanuel, et.al. (2008) opines as “The concept of the Quantity Theory of Money (QTM) was introduced in the economic theory in the 16th century. Jean Boldin in his book reprinted in 1924 argued that the reasons for the rise in French prices were abundance of gold and silver, monopolies, scarcity, the pleasure of princes, and devaluation of the currency. He asserted that prices had increased higher than they were fifty years back in France. He was primarily interested in determining the causes of the price rise in France. According to Boldin, gold and silver were used as currency in France and due to the over use of such items prices had increased. It was one of the first statements that linked price movement to movements in money stock (Klein, 1970). He noted that the increase in the supply of gold and silver used as money caused an increase in demand for French goods, resulting in the increase of prices at home abroad. In the 1690s, John Locke developed monetary theory and elaborated the discussion by examining the effects of money on trade, the role of the demand for money, and the importance of interest rate on the economy. He believed that money is a medium of exchange in trade (Klein, 1970) and that the amount needed depended on the “quickness of circulation”, which we today refer to as “velocity” of

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