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
the theories we know today. One of these individuals who influenced economics in this way was Irving Fisher. Irving Fisher was a very unique and brilliant man. He attended Yale University where he studied mathematics. He later used this background and applied it to economics, earning a PhD in economics, the first from Yale University. His study of mathematics played a crucial role in how his theories evolved. Almost all of his work involves mathematical computations to express the theories he devised
Macroeconomics Assignment 4 – Lessons 7& 8 Solutions 1. What distinguishes money from other assets in the economy? (2 Mark) ANS: Money is different from other assets in the economy because it is the most liquid asset available. Other assets vary widely in their liquidity. 2. What are demand deposits, and why should they be included in the stock of money? (2 Mark) ANS: Demand deposits are balances in bank accounts that depositors can assess on demand simply by
2.4 Keynesian Views on Money-Price Relationship Keynes accepted the classical view that increase in money supply causes rising prices or inflation only when the aggregate output corresponds to full employment and aggregate supply curve is vertical. Keynes published an article entitled ‘How to Pay for the War’ in 1940, in which he developed a demand side model incorporating inflation process with temporarily rigid prices in the labor market. The primary concern of Keynes was to provide space for
Steven Tian Yi Zhang “Models of the Phillips curve/aggregate supply relationship based on flexible wages and prices fail to explain persistence in both the price level and inflation whereas those based on nominal rigidities readily explain both.“ Discuss. The statement that “models of the Phillips curve/aggregate supply relationship based on flexible wages and prices fail to explain persistence in both the price level and inflation whereas those based on nominal rigidities readily explain both”
percentage become a reality for the economy, which means the Federal Reserve would be shifting its focus to increasing the money supply instead of controlling inflation and decreasing the money supply. Theory Review an Analysis To begin, the article explains the Federal Reserve’s plan to take a careful approach to enacting contractionary monetary policies, policies used to decrease money supply, in the future. Last December the Federal Reserve raised the interest rates after they had been near zero for
explains price level and real output through the relationship of aggregate demand and supply. The aggregate demand curve consist of consumption(C), investment (I), government spending (G), net export (NX). The question caused by monetary expansion. In this essay, it analysis monetary policy, Philips curve which relation between inflation and unemployment.it draws conclusion and apply the theory into two countries which are England and France. Basically, the monetary policy is government 's or central
a. rate of growth of the money supply. b. minimum wage rate. c. expected inflation rate. d. All of the above are correct. ANS: B PTS: 1 DIF: 1 REF: 35-1 TOP: Natural rate of unemployment MSC: Definitional 5. One determinant of the long-run average unemployment rate is the a. market power of unions, while the inflation rate depends primarily upon government spending. b. minimum wage, while the inflation rate depends primarily upon the money supply growth rate. c. rate
This will speed up the flow of money, resulting in more money is created in the market and rising price level. Moreover, inflation expectations often makes people to increase the purchase of real or financial assets rather than holding the money, considering hedge risk or make investment. As a result, the monetary supply become overabundance so that promote the rise of price level. Dotsey and King (1983) implied the aggregate supply and rational expectation theory to explore the monetary policy
2.3 Quantity Theory of Money in the Early Twentieth Century The classical (e.g. Adam Smith, David Hume, David Ricardo, and John Stuart Mill) and the neoclassical schools (e.g. Alfred Marshall, A. C. Pigou, Irving Fisher ) state that inflation is a monetary phenomena (Snowdon and Vane, 2005). According to Classicists, volume of money determines the price level in the economy that operates with full employment and relative prices are determined by demand for and supply of real goods. These economists