Quantity Theory Of Money

An economic theory which proposes a positive relationship between changes in the money supply and the long-term price of goods. It states that increasing the amount of money in the economy will eventually lead to an equal percentage rise in the prices of products and services. The calculation behind the quantity theory of money is based upon Fisher Equation:

Calculated as:
Quantity Theory Of Money


Where:
M represents the money supply.
V represents the velocity of money.
P represents the average price level.
T represents the volume of transactions in the economy.

This theory originated in the sixteenth century as European economists noticed higher levels of inflation associated with importing gold or silver from the Americas.

According to how the formula is derived, holding the transaction volume and velocity of money constant, any increases in the money supply will yield a proportional increase in the average price level.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Quantity theory of money — In economics, the quantity theory of money is a theory emphasizing the positive relationship of overall prices or the nominal value of expenditures to the quantity of money. Origins and development of the quantity theory The quantity theory… …   Wikipedia

  • quantity theory of money —       economic (economics) theory relating changes in the price levels to changes in the quantity of money. In its developed form, it constitutes an analysis of the factors underlying inflation and deflation. As developed by the English… …   Universalium

  • quantity theory of money — noun see quantity theory …   Useful english dictionary

  • quantity theory of money — noun the theory that changes in prices and the value of money vary with changes in the amount of money in circulation …   Wiktionary

  • quantity theory — noun or quantity theory of money : a theory in economics: changes in the price level and the value of money vary with changes in the amount of money in circulation …   Useful english dictionary

  • money, quantity theory of — Economic theory relating changes in the price level to changes in the quantity of money. It has often been used to analyze the factors underlying inflation and deflation. The quantity theory was developed in the 17th and 18th centuries by… …   Universalium

  • quantity theory — noun Date: 1888 a theory in economics: changes in the price level tend to vary directly with the amount of money in circulation and the rate of its circulation …   New Collegiate Dictionary

  • money — moneyless, adj. /mun ee/, n., pl. moneys, monies, adj. n. 1. any circulating medium of exchange, including coins, paper money, and demand deposits. 2. See paper money. 3. gold, silver, or other metal in pieces of convenient form stamped by public …   Universalium

  • Money supply — Finance Financial markets Bond market …   Wikipedia

  • money supply — monetary stock The quantity of money issued by a country s monetary authorities (usually the central bank). If the demand for money is stable, the widely accepted quantity theory of money implies that increases in the money supply will lead… …   Big dictionary of business and management

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.