TheQuantityTheoryand8the Velocity of MoneyMV =PYor%AM+ %AV = %AP + %AYMoney Growth+VelocityGrowth=Inflation + Output Growth20-11
20-11 % M % V % P % Y or MV PY + = + = Money Growth + Velocity Growth = Inflation + Output Growth The Quantity Theory and the Velocity of Money
TheQuantityTheoryandthe Velocity of Money2. The Quantity Theory of Money - Irving Fisherassume that %V = 0 and %△Y = 0.doubling the quantity of money doubles the pricelevel.Inflation is a monetary phenomenon (MiltonFriedman).20-12
20-12 2. The Quantity Theory of Money – Irving Fisher • assume that %ΔV = 0 and %ΔY = 0. • doubling the quantity of money doubles the price level. • Inflation is a monetary phenomenon (Milton Friedman). The Quantity Theory and the Velocity of Money
Velocity of MoneyCA.Velocityof Miand M2 (onthesamevertical scale)10O842195919631967197119751979198319871991199519992003MI VelocityM2Velocity20-13
20-13 Velocity of Money