The reason is that they want to settle the financial t… the quantity theory of money, which in its simplest and crudest form states that changes in the general level of commodity prices are determined primarily by changes in the quantity of money in circulation. Friedman (1956) rejects this depiction as too extreme and provides a short description of the quantity theoretic perspective. Crucial to understanding this matter is the distinction economists make between face (or nominal) values and real values—that is, between official values stated in current dollars, pesos, pounds, yen, euros, and so on and the same quantities adjusted by … Quantity Theory of Money Dr. M. Abdul Jamal Assistant Professor Department of Economics The New College (Autonomous), Chennai - 600014 2. traditional quantity theory reconciled a variable money stock with a constant demand for money and a passive price mechanism. Quantity Theory of Money. Moreover, the equation provides another take on the monetarist theory as it relates GDP to the demand for money (contrary to Keynesian economists, who believe that interest rates drive inflation). In its earliest form the theory was presented by Davanzal in 1588. In his theory of demand for money, Fisher attached emphasis on the use of money as a medium of exchange. In fact, the demand for money is the quantity of money that people want to hold. ANSWER: A NOTES: REF: 199. 1. Classical explanation for charges in the value of money is embodied in the quantity theory of money. The exchange equation is: V – refers to the Velocity of Money, which measures how much a single dollar of money supply spend contributes to GDP, Q – refers to the quantity of goods and services produced in the economy. According to the quantity theory of money, if the amount of money in an economy doubles, price levels will also double. To learn more about related topics, check out the following CFI resources: Become a certified Financial Modeling and Valuation Analyst (FMVA)®FMVA® CertificationJoin 350,600+ students who work for companies like Amazon, J.P. Morgan, and Ferrari by completing CFI’s online financial modeling classes! The Demand Curve is a line that shows how many units of a good or service will be purchased at different prices. Mill adopted this version of the quantity theory with their own refinements and improvements. Although people do not hold idle cash balance, they hold some quantity of money for the transaction purpose. 4. The equation is:M x V = P x TM = the stock of money. The Italian writer, Davanzatti, was the originator of the idea of the Quantity Theory of Money. 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