Quantity Theory Of Money

Dictionary Says

Definition of 'Quantity Theory Of Money'

An economic theory which proposes a positive relationship between changes in the money supply and the long-term price of goods.  It states that increasing the amount of money in the economy will eventually lead to an equal percentage rise in the prices of products and services. The calculation behind the quantity theory of money is based upon Fisher Equation:

Calculated as:
Quantity Theory Of Money


Where:
M represents the money supply.
V represents the velocity of money.
P represents the average price level.
T represents the volume of transactions in the economy.
Investopedia Says

Investopedia explains 'Quantity Theory Of Money'

This theory originated in the sixteenth century as European economists noticed higher levels of inflation associated with importing gold or silver from the Americas. 

According to how the formula is derived, holding the transaction volume and velocity of money constant, any increases in the money supply will yield a proportional increase in the average price level.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Velocity Of Money

    The rate at ...
  2. Money Supply

    The entire stock ...
  3. Monetary Policy

    The actions of a ...
  4. Inflation

    The rate at ...
  5. Macroeconomics

    The field of ...
  6. Fisher Effect

    An economic ...
  7. Neutrality Of Money

    An economic ...
  8. Expansion

    The phase of the ...
  9. Demographic Dividend

    The freeing up ...
  10. Export

    A function of ...

Articles Of Interest

  1. What Is the Quantity Theory of Money?

    Take a look at the tenets, assumptions and challenges of monetarism's principal theory.
  2. What Is Fiscal Policy?

    Learn how governments adjust taxes and government spending to moderate the economy.
  3. What You Should Know About Inflation

    Find out how this figure relates to your investment portfolio.
  4. All About Inflation

    What causes inflation? How does it affect your investments and standard of living? This tutorial has the answers.
  5. A Primer On Reserve Currencies

    For nearly a century, the U.S. dollar has served as the world's premier reserve currency, but the future is uncertain.
  6. Derivatives 101

    Learn how to use this type of investment as an alternative way to participate in the market.
  7. Okun's Law: Economic Growth And Unemployment

    Learn about Okun's Law, why it is important and how it stood the test of time since first being published.
  8. How Debt Limits A Country's Options

    While debt is fundamentally necessary to the operation of a national government, it can also be limiting and dangerous.
  9. The Link Between The Fed, Money, Debt And Taxes

    Assets on the Fed's balance sheet, money supply level, national debt level and economic production should be maintained in equilibrium.
  10. Employability, The Labor Force And The Economy

    Individuals do not have absolute control of their employability since employability is also affected by market and economic conditions.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center