According to Marshall, what will be the shape of the money demand curve in quantity theory of money?
Answers
Answer:
Monetary economics is a branch of economics that studies different theories of money. One of the primary research areas for this branch of economics is the quantity theory of money. According to the quantity theory of money, the general price level of goods and services is proportional to the money supply in an economy. While this theory was originally formulated by Polish mathematician Nicolaus Copernicus in 1517, it was popularized later by economists Milton Friedman and Anna Schwartz after the publication of their book, "A Monetary History of the United States, 1867-1960," in 1963.1
According to the quantity theory of money, if the amount of money in an economy doubles, price levels will also double. This means that the consumer will pay twice as much for the same amount of goods and services. This increase in price levels will eventually result in a rising inflation level; inflation is a measure of the rate of rising prices of goods and services in an economy.
Key Takeaways
One of the primary research areas for the branch of economics referred to as monetary economics is called the quantity theory of money.
According to the quantity theory of money, the general price level of goods and services is proportional to the money supply in an economy.
The same forces that influence the supply and demand of any commodity also influence the supply and demand of money: an increase in the supply of money decreases the marginal value of money so that the buying capacity of one unit of currency decreases.
Many Keynesian economists remain critical of the basic tenets of the quantity theory of money and monetarism, and challenge the assertion that economic policies that attempt to influence the money supply are the best way to address economic growth.
The same forces that influence the supply and demand of any commodity also influence the supply and demand of money: an increase in the supply of money decreases the marginal value of money–in other words, when the money supply increases, the buying capacity of one unit of currency decreases. As a way of adjusting for this decrease in money's marginal value, the prices of goods and services rises; this results in a higher inflation level.
Explanation:
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Answer:
The demand curve will be a downward sloping curve from left to right in the quantity theory of money.
Explanation:
- The cash balance approach or Cambridge equation was given by Cambridge professors Marshall, Pigou & Roberston.
- It focuses on the reserve value of money instead of the medium of exchange of money.
- It is denoted by :
- P = M / KR ( marshall)
Where,
K is the real money which is in cash form
R is the total real national income.
- P = M/ KT ( Robertson)
where T is the national income.
- P = M / KT { c + h (l} ( pigou)
c = that part of cash money which the public keep with them.
h = that part of cash money which deposited in the bank.
Thus, according to the cash balance approach, the demand curve will always be downwards.
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