Explain the fisher's equation of exchange.how is the cash balance equation an improvement over fisher's equation.
Answers
Answer:
Explanation:
According to the fisher's equation, the total quantity of money (MV) paid for the goods and services should equal their value (PT).
The fisher equation also explains the relationship between inflation and the nominal and real interest rates. The trade equation is MV = PT
The cash balance approach relates to the process of determination of the value of money to cash the subjective assessments of individuals who are the real force behind all economic activities P = 1/k × M/Y
The equation of cash balances is an improvement over the equation of fishermen The approach of cash balances is superior to the approach of transactions because it totally discards the idea of the velocity of money movement which obscures the motivations and decisions of the people behind it.