This section includes the current investigation and version of the economist regarding the quantity theory of money (QTM). Under it, we will analyze the latest and most renowned version of Ajuzie Emmanuel I.S. et al. (2008) has investigated the quantity theory of money in the current context. This new formulation of quantity theory of money includes the following assumptions.
- Money is exogenously determined.
- Value of circulation is determined by the changes in price levels rather than amount of money available or current price level.
- Changes in velocity of money occur due to the factors like changes in transportation, new financial institution and other exogenous factors.
- Velocity of money is assumed to remain more or less stable in the long run.
- Inflation is the long run phenomenon.
- Real GDP is determined by the availability of labor, capital, natural resources, knowledge, and entrepreneurship.
- Economy is assumed to operate with full employment in the long run.
Based on the above assumptions, current investigation of Quantity Theory of Money emphasizes
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It is here considered as currency (including coins), bank deposits, and traveler’s cheques. is the velocity of money. This reflects financial institutions and other economic conditions. is the deflator. It is a weighted average of prices of all final goods and services produced in the economy. It is, therefore, the broadest-based measure of the nation’s price level. is the total market value of final goods and services produced in the economy during one year of time. A rise in money supply, through its impact on aggregate demand, results in an increase in nominal . If velocity of money is held constant, an increase in nominal is proportional to the increase in money supply. In order to determine the impact of a rise in money supply on inflation/price rate, we rewrite equation (2.21) to obtain equation
money.In the line “To be made of it !” Gioia uses a hyperbole by referring to rich people as being
"Money", a poem written by Dana Gioia, not only shows how powerful money can be, but also explores how evil and toxic it can become. The first thing to notice before reading the poem "Money" is a quote at the top of the poem that states, "Money is a kind of poetry" by Wallace Stevens. When reading it you might fly by without noticing what he is truly trying to say. Dana Gioia is trying to get the reader to question the true meaning of the poem before you read it. There are many ways that the quote could be understood. Past or present poetry can be very powerful and it can inspire, influence or motivate someone to do anything. This is similar for money it can control someone's life making them do things they would not normally do, it is a very powerful thing. Money can be used for anything in today's world and so can the pen and paper if the right words are used.
Empirical literature examining the determinants of inflation has mostly viewed it as a monetary phenomenon. This viewpoint basically stems from Milton Friedman’s famous dictum that inflation is always and everywhere a monetary phenomenon. However, the conjecture of Friedman has recently come under attack. In fact, there appears to be virtually no correlation between money growth and inflation since the early 1980s. This leads to evolution of the argument known as Fiscal Theory of Price Level (FTPL). To capture the nonmonetary aspects of inflation, a number of economists investigate the main political, institutional and economic determinants of inflation across countries and over time. For instance, Aisen and Veiga (2006) conclude that political instability leads to higher inflation. Their study reveals that an additional government crises and a cabinet change which are used as proxy for measuring political instability raise inflation rate by 16.1% and 9.1% respectively. In another study, Aisen and Veiga (2008) extend their work to further analyze the effect of political instability, social polarization and the quality of institutions on inflation volatility. They argue that politically unstable and socially polarized countries with weak institutions are more exposed to political shocks that result in discontinuous monetary and fiscal policies which in turn result in higher inflation volatility. The intuition is that rising inflation instability creates frictions on market which reduces economic efficiency and causes the prevailing price in the economy to deviate from the price which would otherwise have been determined in presence of stable price level. They also provide evidence that greater independence of the Central Bank leads...
Supporting your family members is something we all do. We will do anything for the ones we love and care about. Some families have to do more than others when it comes to this. Especially those with family members living in struggling countries. Junot Diaz reminisces in his story “The Money” of the time during his childhood when his mother collected remittance for his grandparents in Santo Domingo. After returning from a short road trip he discovers the money collected for his grandparents has been stolen, and after some investigating he finds that his friends are the culprits. Diaz steals back what is left of the remittance and returns it to his mother who hides it in a safer place. Money was tight in Diaz’s home, but his mother still took
The idea of the money growth rule is contingent upon the relationship between the money supply and inflation. Therefore, the question arises whether there even is a relationship between money supply and inflation. As stated earlier, one can see a relation between money and inflation. Presented above is series data that displays this relationship between money supply and the inflation rate over the previous decades. The problem is that there are fluctuations within the data and therefore a broader definition of the money supply must be utilized. Based on the research of Dr. Terry J. Fitzgerald, an economist at the Cleveland Federal Reserve Bank, if one defines money supply as M2, when examining the data over a multiple year progression, a pattern begins to present itself. Further, by graphing the difference between adjusted money growth and inflation, the link becomes evident. These graphs show the weight that changes to the money supply can have upon an economy’s inflation rate.
The Economy is the backbone to society. There are many factors that operate in, and govern our society’s economical structure. Factors such as scarcity and choice, opportunity cost, marginal analysis, microeconomics, macroeconomics, factors of production, production possibilities, law of increasing opportunity cost, economic systems, circular flow model, money, and economic costs and profits all contribute to what is known as the economy. These properties as well as a few others, work together to influence the economy. Microeconomics and Macroeconomics are two major components. Both of these are broken down into several different components that dictate societal norms and views.
Money has evolved with the times and is a reflection of the progress of man. Early money was a physical commodity, grain, gold or silver. During the vital stage, more symbolic forms of money such as certificates of deposit, bank notes, checks, letters of credit, bonds and other forms of negotiable securities came into prominence. Social development transformed money into a trust, “In God We Trust' it says on the back of the ten-dollar bill.” (The Ascent of Money, 27)
Money supply is the availability of money in the hands of the public (economy) that can be used to purchase goods, services and securities. In macroeconomics, the price of money is equivalent to the rate of interest. There's an inverse relationship between money supply and interest rates. As money supply increases, interest will decrease. On the other hand, interest will increases as money supply decreases. It is very important to understand that the economy works at market equilibrium. There are several factors affecting money supply; and these contributing factors will be the main focus of this paper. Understanding the basic principle on money supply is imperative to have a good grasp on the macroeconomic impact of money supply on business operations.
the empirical relations based on the VAR test conducted for the period 1990 to 2009 show that, Money supply and inflation are weakly positively correlated, Money supply and interest rates are very weakly and negatively correlated, Money supply and real GDP are strongly positively correlated, Money supply and nominal GDP are very strongly negatively correlated. Furthermore, the response of inflation to shocks in money supply is very weakly positive or has no effect since it is constant through out. This indicates that the relationship between money supply and inflation is not too significant.
A traditional analysis gives a mistakenly high value to dollars in the future, money in the future is given the same value as money today; but in reality, money in the fu...
One might know that time is one of the most valuable assets in our lives. In the financial world the value of money is linked to time, primarily because investors expect progressive returns on their cash over periods of time, and they always compare the return from certain investments with the going or average returns in the market. Inflation on other hand erodes the purchasing power of money causing future value of one dollar to be less than the present value of a dollar. This paper will examine time value of money and the applications that determine successes or failures. An examination of the different vehicles that can be used to generate financial security for corporations and individuals will be provided. After defining the applications that generalize time value of money, an explanation will be offered regarding the components of interest rates by expanding on the concept that interest rate equates the future value of money with present value.
Today, couple of monetary forms are completely upheld by gold or silver. Subsequent to most world monetary standards are fiat cash, the cash supply could increment quickly for political reasons, bringing about inflation. The
Because this rate, along with the nominal, are constantly in use in the global economy, these rates can fluctuate depending on a range of factors ...
The invention of money was a major improvement in peoples’ lives. In the past, people usually had to travel all day to find the person who is willing to exchange their goods. In addition, the goods people want to exchange did not have the standard value of measurement. This led to unequal exchanges. Furthermore, it is not convenient to carry heavy goods from one place to another for an exchange. To solve these issues, money will be the only solution. Later, people tend to develop money from cowry shells to credit cards for the convenience and to improve their society.
Saving money brings security for any future expenses. The earlier in life an individual begins to save, the better they will be set financially in the years to come. There are several reasons why it is important to save money. A few of these reasons are for emergencies, retirement, and simply for luxury spending. Having money will benefit each of these examples.