# Quantity theory of money (Fisher) / Phillips curve

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#1
According to the Fisher Equation MV=PY, assuming V and Y stay constant an increase in the Money Supply is proportional to an increase in Price Level. Which supposedly was derived from a rightward shift in AD as increased Money is an injection into the circular flow of income. Would this mean there's a leftward movement along the Phillips curve to show an increase in Inflation rate in the short-run, and decrease in unemployment?
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#2
Bump .
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6 years ago
#3
(Original post by Abdul-Karim)
According to the Fisher Equation MV=PY, assuming V and Y stay constant an increase in the Money Supply is proportional to an increase in Price Level. Which supposedly was derived from a rightward shift in AD as increased Money is an injection into the circular flow of income. Would this mean there's a leftward movement along the Phillips curve to show an increase in Inflation rate in the short-run, and decrease in unemployment?
Depends on the model. Yes under a Keynesian.

Is this for Uni or A-Levels? Havent heard the phrase 'circular flow of income' since I was 17 and I've done 4 years at LSE
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#4
(Original post by Zürich)
Depends on the model. Yes under a Keynesian.

Is this for Uni or A-Levels? Havent heard the phrase 'circular flow of income' since I was 17 and I've done 4 years at LSE
A levels. What do you mean depends on Keynesian view? The view under operating closer to the PPF an increase in AD is inflationary, but it says RNO stays constant? so would I have to draw the Keynsian AD/AS diagram to explain inflation increase?

I would of thought the neo-classical view also shows an increase in the price level with a rightward shift of the AD curve, aswell as increased RNO which better demonstrates the decrease in unemployment, for the leftward shift along the Phillips curve?
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6 years ago
#5
(Original post by Abdul-Karim)
A levels. What do you mean depends on Keynesian view? The view under operating closer to the PPF an increase in AD is inflationary, but it says RNO stays constant? so would I have to draw the Keynsian AD/AS diagram to explain inflation increase?

I would of thought the neo-classical view also shows an increase in the price level with a rightward shift of the AD curve, aswell as increased RNO which better demonstrates the decrease in unemployment, for the leftward shift along the Phillips curve?
Neo-classical predicts just inflation, 'money is neutral'. But this is beyond A-levels for sure. The Phillips Curve itself is entirely based on Keynesian assumptions about the labour market but again this is not relevant for your Q. You can show it on an AD/AS with a rightward shift in AD.

What's RNO?
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#6
(Original post by Zürich)
Neo-classical predicts just inflation, 'money is neutral'. But this is beyond A-levels for sure. The Phillips Curve itself is entirely based on Keynesian assumptions about the labour market but again this is not relevant for your Q. You can show it on an AD/AS with a rightward shift in AD.

What's RNO?
Oh okay thank you, RNO = Real National Output (National Income) The X-axis in the AD/AS graphs
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6 years ago
#7
(Original post by Abdul-Karim)
Oh okay thank you, RNO = Real National Output (Nation Income)
Strange term...
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#8
(Original post by Zürich)
Strange term...
One more question, in the A level exams were you allowed in macro to mix micro-economic graphs in order to analyse? Or did you strictly have to stick to macro-economic theories and graphs?
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6 years ago
#9
(Original post by Abdul-Karim)
One more question, in the A level exams were you allowed in macro to mix micro-economic graphs in order to analyse? Or did you strictly have to stick to macro-economic theories and graphs?
Cant remember, sorry. Did my Alevels in 2008.
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#10
(Original post by Zürich)
Cant remember, sorry. Did my Alevels in 2008.
What were you're end of year A-level grades to get into LSE, because competition is so fierce
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6 years ago
#11
(Original post by Abdul-Karim)
What were you're end of year A-level grades to get into LSE, because competition is so fierce
AAA + AEA distinction in Economics.

Helped by the fact I sat my final A-Levels at 16 and because my reference was from my economics teacher who was also the principal. LSE care very much about the reference.
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#12
(Original post by Zürich)
AAA + AEA distinction in Economics.

Helped by the fact I sat my final A-Levels at 16 and because my reference was from my economics teacher who was also the principal. LSE care very much about the reference.
Wow, nice. I have no hope in competing for LSE
Last edited by gr8wizard10; 1 year ago
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6 years ago
#13
(Original post by Abdul-Karim)
Wow, nice. I have no hope in competing for LSE I haven't done maths or any science
It's not the end of the world. Lots of top unis take those without maths and I know of people who did BAs who then came to LSE for a MSc
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#14
(Original post by Zürich)
It's not the end of the world. Lots of top unis take those without maths and I know of people who did BAs who then came to LSE for a MSc
Predicted A*AA I'm trying to do Finance & Accounting or something to do with Risk management, City offers Finance, Investement and Risk. Going to try apply there Just my PS is weak, haven't done any work internships.
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