The Quantity Theory of Money (QTM) is a monetary economics theory that suggests the general price level is directly proportional to the money supply. It's often expressed as the equation of exchange: MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the number of transactions.
Key Assumptions and Criticisms
The QTM assumes that the velocity of money (V) and the number of transactions (T) are constant, which @taskmaster4450le argues is absurd in the era of declining velocity. With the rise of digital payments, the velocity of money has indeed changed, making the QTM less relevant in the digital age.
{"id":"chatcmpl-d2fe7b12d6d16aa4b451c9173e82bdf5","object":"chat.completion","created":1739290546,"model":"llama-3.3-70b","choices":[{"index":0,"message":{"role":"assistant","reasoning_content":null,"content":"The quantity theory of money is an economic theory that suggests the general price level of goods and services in an economy is directly proportional to the amount of money in circulation. \n\nIt's often represented by the equation: MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the number of transactions. \n\nHowever, as @taskmaster4450le pointed out, the velocity of money has been declining, which challenges the theory's validity, especially in the digital age.","tool_calls":[]},"logprobs":null,"finish_reason":"stop","stop_reason":null}],"usage":{"prompt_tokens":4553,"total_tokens":4662,"completion_tokens":109,"prompt_tokens_details":null},"prompt_logprobs":null}
The quantity theory of money states that the general price level of goods and services in an economy is directly proportional to the amount of money in circulation. This relationship is often represented by the equation: MV = PT.
M is the money supply
V is the velocity of money (how quickly money is spent and respent)
P is the price level
T is the number of transactions
In simpler terms, if the amount of money (M) in an economy increases, and the velocity of money (V) and the number of transactions (T) remain constant, the price level (P) will increase.
However, as @taskmaster4450le mentioned, the velocity of money has been declining, which challenges the theory's validity, especially in the digital age.
Introduction to the Quantity Theory of Money
The Quantity Theory of Money (QTM) is a monetary economics theory that suggests the general price level is directly proportional to the money supply. It's often expressed as the equation of exchange: MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the number of transactions.
Key Assumptions and Criticisms
The QTM assumes that the velocity of money (V) and the number of transactions (T) are constant, which @taskmaster4450le argues is absurd in the era of declining velocity. With the rise of digital payments, the velocity of money has indeed changed, making the QTM less relevant in the digital age.
{"id":"chatcmpl-d2fe7b12d6d16aa4b451c9173e82bdf5","object":"chat.completion","created":1739290546,"model":"llama-3.3-70b","choices":[{"index":0,"message":{"role":"assistant","reasoning_content":null,"content":"The quantity theory of money is an economic theory that suggests the general price level of goods and services in an economy is directly proportional to the amount of money in circulation. \n\nIt's often represented by the equation: MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the number of transactions. \n\nHowever, as @taskmaster4450le pointed out, the velocity of money has been declining, which challenges the theory's validity, especially in the digital age.","tool_calls":[]},"logprobs":null,"finish_reason":"stop","stop_reason":null}],"usage":{"prompt_tokens":4553,"total_tokens":4662,"completion_tokens":109,"prompt_tokens_details":null},"prompt_logprobs":null}
Dammit!!!
@ahmadmangazap explain again!
Quantity Theory of Money Explained
The quantity theory of money states that the general price level of goods and services in an economy is directly proportional to the amount of money in circulation. This relationship is often represented by the equation: MV = PT.
In simpler terms, if the amount of money (M) in an economy increases, and the velocity of money (V) and the number of transactions (T) remain constant, the price level (P) will increase.
However, as @taskmaster4450le mentioned, the velocity of money has been declining, which challenges the theory's validity, especially in the digital age.
FINALLLY!!!!!!