Knowra Quantity theory of money Quantity theory of money The quantity theory of money links the money supply to the general price level. Its versions differ in assumptions about money’s velocity and real output.
Equation of exchange : An accounting identity stating that the money stock times its velocity equals the price level times real output. It expresses the quantity theory’s central relationship among money, transactions, prices, and production.
Martín de Azpilcueta : A sixteenth-century Spanish theologian and jurist who analyzed the effects of American silver on prices. His account of silver abundance and rising prices is an early statement of the theory’s core intuition.
Keynesian economics : An economic framework emphasizing aggregate demand, price rigidities, and short-run fluctuations in output and employment. Keynesian analysis allows changes in money to affect output and interest rates before prices adjust.
Monetary policy : Central-bank actions that influence money, credit, interest rates, and economic conditions. Quantity-theory reasoning shapes arguments about whether monetary control can stabilize prices.
Endogeneity of money : The view that money creation responds partly to lending, spending, and institutional demand rather than being set independently. If money responds to nominal activity, observed correlation may not establish money growth as the initiating cause.
Velocity of money : The rate at which a unit of money is used to purchase final goods and services over a period. The theory’s price-level prediction depends on whether velocity changes or remains stable.
Jean Bodin : A sixteenth-century French political philosopher who linked Europe’s price rises to the influx of precious metals. His explanation helped establish money abundance as a cause of higher prices.
Liquidity preference : The theory that money demand depends on income, interest rates, and preferences for holding liquid assets. It makes velocity responsive to interest rates and money-holding decisions rather than fixed.
Hyperinflation : An exceptionally rapid and usually accelerating rise in the general price level. Episodes of extreme inflation are often examined for links between money creation and prices.
Money demand : The amount of money households and firms choose to hold under given economic conditions. Stable money demand would support predictable velocity; instability weakens that link.
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