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Revision:Classical Monetary Theory - The Traditional Quantity Theory

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TSR Wiki > Study Help > Subjects and Revision > Revision Notes > Economics > Classical Monetary Theory - The Traditional Quantity Theory


The Transactions Approach

Fischer equation: MV = PT,

where:

  • M = Money stock;
  • V = velocity of circulation (average no of times each monetary unit is utilised in a given accounting period);
  • P = general P level;
  • T = total no of transactions.


If V & T assumed constant in ST, then: MV = PT - therefore \Delta \to \Delta


Here, increase in Money stock initiates price rises, and the transactions demand for money then responds passively to this Price increase. Ceteris Paribus, MD unit elastic.


The Cambridge Cash Balance Approach

(Doesn’t seem esp. imp)


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