Monetary Policy

Monetary Policy - Monetary Policy(A Equation of Exchange...

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Monetary Policy (A) Equation of Exchange: Monetary policy, like fiscal policy, can also be used either as an alternative or a complementary measure. It can be used for its expansionary or contractionary effects. The classical economists would rely more on the monetary policy. This is because it operates only indirectly and helps to avoid direct intervention of the public authority in economic activities . But before we go on to analyze monetary policy, it would not be out of context to consider the equation of exchange . In the early present century Sir Irving Fisher introduced an equation of exchange. This briefly summarizes classical position in this respect. The equation of exchange can be stated as : MV = PT or MV = PY There are four terms in the equation; two each on the left and right sides. On the left hand side of the equation we have total supply of money which is M multiplied by V. The letter M stands for total
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Monetary Policy - Monetary Policy(A Equation of Exchange...

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