The article "The Quantity Theory of Money" discusses the history, rationale, and founders of the theory. This writing first gives an example of the equation that represents the quantity theory. It then lists some of the famous economists that have backed this idea. The person who gave the most validity to the quantity theory was Irving Fisher, who is considered the father of modern economics. There is a lengthy explanation as to why the equation for the quantity theory works. The problem with this article is that the author is approaching the problem from a quantity theory perspective.

The flaws in this piece of writing begin with the equation MV=PT where "M" represents the money supply, "V" represents the velocity of money, "P" represents the price level, and "T" is the level of transactions. This equation assumes that "V" and "T" are fixed, and that an increase in the money supply will result in an increase in the price level which represents inflation. Some economists argue that "T" is not fixed. It could represent the amount of a product that is purchased with the new money plus old money, rather than the total amount of product purchased. For example, if a person received $500 in extra cash they would buy the same amount of toilet paper, but thy would use cash rather than a credit card or check. That would mean that "T" is not fixed and an increase in money supply would not necessarily result in an increase in price level. It is reckless for the author to prove his point based on an equation that has not been proven, therefore this entire theory should be discredited.

Subscribe to:
Post Comments (Atom)

## 1 comment:

Unquestionably believe that which you stated. Your favorite reason appeared to be on the net the simplest thing to be aware of.

I say to you, I certainly get annoyed while people consider worries

that they just do not know about. You managed to hit the

nail upon the top and also defined out the whole thing without having side-effects ,

people could take a signal. Will likely be back to get

more. Thanks

Also visit my weblog: adt home security

Post a Comment