{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 22 - Chapter 22-The Demand for Money Velocity of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 22-The Demand for Money Velocity of Money and The Equation of Exchange Quantity Theory •Velocity fairly constant in short run •Aggregate output at full-employment level •Changes in money supply affect only the price level •Movement in the price level results solely from change in the quantity of money Quantity Theory of Money Demand Quantity Theory of Money Demand •Demand for money is determined by: –The level of transactions generated by the level of nominal income PY M = the money supply P = price level Y = aggregate output (income) P × Y = aggregate nominal income (nominal GDP) V = velocity of money (average number of times per year that a dollar is spent) V = P × Y M Equation of Exchange M × V = P × Y
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
–The institutions in the economy that affect the way people conduct transactions and thus determine velocity and hence k Keynes’s Liquidity Preference Theory •Why do individuals hold money?
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}