Questions tagged [quantity-theory-of-money]

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Quantity theory of money: microfoundations

The quantity theory of money states the price level is proportional to the amount of money in circulation. That is, if the quantity of money increases by some factor $k$, the price level will increase ...
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1answer
48 views

Quantity theory of money

Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate. My ...
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0answers
10 views

Difference between IS curve viewed by Keynes and by Friedman

In my economics lectures, we are going through Keynes vs Friedman. As far as I got we have a downward sloping IS curve in the IS-LM model. We get this curve from the Keynesian cross when the rate of ...
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0answers
7 views

How Do I Numerically Represent Liquidity in the General Monetary Model Md = L(i) x PY

Please help me it's driving me mad yet I know it's so simple. I understand the qualitative aspects - how liquidity is simply a portion of our nominal income that we demand for transactions. And how ...
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0answers
21 views

Who profits from monetary expansion?

Is my understanding correct: In history (ancient, medieval) money was directly created by governments, therefore any monetary expansion meant 100% net profit for government, which could be used to ...
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0answers
50 views

Demand for real money balances worked out example

I was looking through some macroeconomic textbooks and came across a seemingly simple equation that derives the demand for real money balances, I also included the explanation for each part of the ...
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3answers
271 views

I don't understand the MV = PY

I'm not a native speaker so please excuse my English. When they draw the result that the central bank's monetary supply determine the inflation rate, didn't they suppose many variables sticky? With ...
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1answer
120 views

Would taxing money owned (as a share of purchasing power) be a better form of taxation?

Consider a nation whose money is entirely digital (like Bitcoin), but centralized (unlike Bitcoin). Furthermore, the total money supply is fixed, i.e. money cannot be created nor destroyed. To be ...
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3answers
338 views

Why do many economists believe that money is neutral in the long run?

If a central bank carried out monetary policy that consisted of multiplying each person's wealth by a common factor, I would find it plausible that all prices would get multiplied by the same factor ...
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1answer
56 views

Question on money supply related to new crypto project

Following questions are related to a crypto project I am working on and proper answers are of utmost importance to this concept's development. I unfortunately lack expert knowledge about money supply ...
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0answers
240 views

How can I determine if a token economic is viable?

Given a system where you incentivize people to do actions in a system, we might have good and bad actors. I would like to know if there is a software or framework where I could put the different <...
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2answers
349 views

What is the effect of expansionary fiscal policy in case liquidity trap situation?

I've read that liquidity trap means interest rate is at its minimum and increase in real money stock will not lead to fall in interest rate because people will be demanding whatever the amount is ...
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2answers
187 views

Difficult quantity theory of money question

Suppose that you live on an island with 100 units of currency. The cultural beliefs of the islanders discourage an excess focus on commerce, which has created two important rules of commerce. First, ...
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0answers
54 views

Static and Dynamic models: Testing the Quantity Theory of Money

The quantity theory of money is stated as a simple equation which states that the general price level of goods and services is directly proportional to the amount of money in circulation. This is ...
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1answer
5k views

Doubt on the meaning of real money balances

Mankiw defines real money balances, $\frac{M}{P}$, to be the quantity of goods and services a given amount of money can buy. On page 88 of Macroeconomics 7th edition, he illustrates the concept with ...
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5answers
130 views

Why do banks charge a spread on credit?

According to the doctrine of the money multiplier (https://en.wikipedia.org/wiki/Money_multiplier), a positive reserve ratio means a bank has LESS loans than deposits. See the table in the link. ...
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3answers
144 views

What is Q in the quantitative theory of money?

I am testing the quantitative theory of money for South Africa. QP = Mv. It is fairly clear what M and P are (broad money, or M1, price index, etc). But I am puzzled with Q. Is it GDP or does it ...
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0answers
56 views

Why is money super neutral in Brunnermeier and Sannikov's I theory of money?

I'm wondering why money is super neutral in Brunnermeier and Sannikov's "I-theory of money", but is not super neutral in their 2016 AER paper "On the optimal inflation rate". In the I-theory of money,...
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1answer
218 views

Wealth - Bond Market and Liquidity Preference Framework

I've been told that an increase in wealth will lead to an increase in both the demand for Bonds determined by the Theory of Asset Demand. This should shift the bond curve to the right, increasing ...
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3answers
131 views

Can everyone in an economy profit?

I earn a salary, but, like many American workers, I don't spend all of it -- I stash away some in the bank. This is a good thing, since I can one day retire (stop producing), and still live ...
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1answer
512 views

How is the growth rate form of the exchange equation derived?

Equation of exchange states: $ MV=PY $ where, $ M $ is Quantity of Money $ V $ is Velocity of Money $ P $ is Price Level $ Y $ is Real GDP Could someone please share how ...
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1answer
151 views

How does burning a huge amount of cash money affect the monetary supply? [duplicate]

I am not an economist by default. In other words, I am a newbie here. Assume there is an extremely rich man who withdraws an extremely huge amount of cash money. He then burns all of it. How does ...
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0answers
2k views

What does the introduction and expanded availability of credit cards do to money velocity?

Consider the quantity theory of money: $MV=PY$. "Consider an example of a demand shock: the introduction and expanded availability of credit cards. Because credit cards are often a more convenient way ...
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1answer
2k views

Does the introduction of credit card affects Money Velocity?

In my macroeconomics class, our professor showed an example of the introduction of the credit card. She says that this will decrease the money people are willing to hold, and thus increase the money ...