Discuss the theories of money in detail
Answers
Answer:
According to the quantity theory of money, the changes in price level of a country occur due to changes in the quantity of money in circulation, while keeping other factors at constant. In other words, an increase or decrease in the price level would occur due to increase or decrease in the quantity of money.
Answer:
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Explanation:
'Theory of Money'
Definition: Quantity theory of money states that money supply and price level in an economy are in direct proportion to one another. When there is a change in the supply of money, there is a proportional change in the price level and vice-versa.
It is supported and calculated by using the Fisher Equation on Quantity Theory of Money.
M*V= P*T
where,
M = Money supply
V = Velocity of money
P = Price level
T = volume of the transactions
Description: The theory is accepted by most economists per se. However, Keynesian economists and economists from the Monetarist School of Economics have criticized the theory.