Concepts
- Quantity Theory of Money
- MV = PY
- M = M1 Measure of the Money Supply
- V = Velocity of Money (How Quickly Money Changes Hands)
- P = Price Level as Measured by a Price Index (GDP Deflator)
- Y = Volume of Transactions in our Economy (RGDP)
- Equation of Exchange
Overview
The quantity theory of money (QTM) is a concept that helps us understand the relationship between the creation of money in an economy and inflation. According to QTM there is a direct relationship between the quantity of money and the price level. In other words, if the amount of money in an economy doubles, the price level will also double. QTM is built around the equation of exchange that helps us measure total spending in an economy. Simply put, if the money supply grows faster than production, that’s a recipe for inflation. QTM gives us the ability to observe and compare these economic measurements.
Materials
Lecture
Video Coming at Later Date
Quiz
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