Lecture notes, cheat sheets
History of Economic Thought. The evolution of the quantity theory of money. Basic postulates of monetarism (the most important) Directory / Lecture notes, cheat sheets Table of contents (expand) 75. EVOLUTION OF THE QUANTITY THEORY OF MONEY. BASIC POSTULATES OF MONETARISM The modern version of neoclassical theory is presented in the form of a theory monetarism, which got its name due to the fact that its main ideas are based on quantity theory of money, one of the oldest economic doctrines, the origin of which dates back to the 16th century, to the time of the formation of the first economic school - the school of mercantilists. Quantity Theory money acted as a kind of reaction to the basic postulates of mercantilism, in particular to the doctrine characteristic of mercantilists that money speeds up trade, increasing the speed of circulation and thereby have a beneficial effect on production. The most rigid version of the quantity theory of money was put forward by an American economist I. Fischer (1867-1977), which is in progress "The Purchasing Power of Money" (1911) derived his famous equation, which is based on a twofold expression of commodity transactions: 1) as the product of the mass of means of payment and the speed of their circulation; 2) as the product of the price level by the quantity of goods sold. The Fisher equation has the form: M x V = P x Q, where M is the volume of means of payment; M x V - the sum of all payments; P - weighted average price level; P x Q is the sum of the prices of all goods. According to the formula Fisher the price level is directly proportional to the quantity of money and the velocity of its circulation, and inversely proportional to the volume of trade. Fisher accepts the premise of neoclassical theory, as follows: production is at the point of maximum possible volume and the velocity of circulation is constant. Among European economists, a popular variant of the quantity theory of money is Cambridge version, or cash balance theory. Proponents of this theory believe that cash balances - this is nothing more than a part of the income that a person wishes to keep in cash form. Cambridge equation, authored by an English economist A. Pigou, as follows: M = K x R x P, where M is the number of monetary units; K is the part of the GGR product that people prefer to keep in the form of money; R is the total value of production in physical terms; P - the price of manufactured products. Unlike the Fisher equation this option puts the focus not on the movement of the money supply, but on the savings in the cash desks of enterprises and individuals. The factors on which the demand for cash balances depends are investigated, and two motives for accumulation are singled out: the formation of a fund of circulation funds and the formation of reserves to cover unforeseen needs. Particular attention in the analysis of the movement of the money supply is paid to the principles of income distribution, where the criterion is, on the one hand, the convenience of accumulated cash balances, on the other hand, the assessment of the victim of lost profits. Monetarism theory, like all variants of the quantity theory of money, will be based on the following parcels: 1) the amount of money in circulation is determined autonomously; 2) the velocity of circulation is rigidly fixed; 3) a change in the quantity of money has an equal and mechanical effect on the prices of all commodities; 4) the possibility of the influence of the monetary sphere on the real process of reproduction is excluded. Author: Tatarnikov E.A. << Back: French dirigisme F. Perroux >> Forward: Economic views of M. Friedman. Friedman's equation We recommend interesting articles Section Lecture notes, cheat sheets: ▪ Accounting financial accounting. Crib ▪ The budget system of the Russian Federation. Crib See other articles Section Lecture notes, cheat sheets. Read and write useful comments on this article. Latest news of science and technology, new electronics: The existence of an entropy rule for quantum entanglement has been proven
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