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Unformatted text preview: constant . ii) The trade volume (T) or level of real income (Y) depends upon the availability of resource supplies and technological conditions. These factors are not likely to alter in the short run with the variations in the quantity of money (M). If these two assumptions are granted then the only dependent variable that remains in the equation is the price level 'P'. Hence the conclusion at once follows: with 'V' and 'T' remaining constant, 'P' will vary directly and proportionately with 'M'. This can be illustrated : Let M = 300, V = 4, T = 600 the P will be equal to 2. But since 'V' and 'T' are constant 'M' and 'P' must vary directly and proportionately. If M is doubled P will also be doubled. Similarly when 'M' is halved P is also halved,...
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 Fall '10
 

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