Lectures in Macroeconomics- Charles W. Upton The Quantity Theory of Money MV = PY
Lectures in Macroeconomics- Charles W. Upton The Quantity Theory of Money MV = PY.
Dec 21, 2015
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Lectures in Macroeconomics- Charles W. Upton
The Quantity Theory of Money
MV = PY
The Quantity Theory of Money
The Scenario
• The Money supply is doubled on Christmas Eve.
• The auctioneer has the job of putting the money market and the goods market back in equilibrium
The Quantity Theory of Money
The Scenario
• The Money supply is doubled on Christmas Eve.
• The auctioneer has the job of putting the money market and the goods market back in equilibrium
Money Supply = Money Demand
Y = C + I + G + (X-M)
The Quantity Theory of Money
The Y and M Curves
P
r
Y
M
Po
ro
The Quantity Theory of Money
The Y and M Curves
P
r
Y
M
Po
ro
Y Curve: The combinations of P and r that keep YS = YD.
Y = C + I + G + (X-M)
The Quantity Theory of Money
The Y and M Curves
P
r
Y
M
Po
ro
Y Curve: The combinations of P and r that keep YS = YD.
The Quantity Theory of Money
The Y and M Curves
P
r
Y
M
Po
ro
M Curve: The combinations of P and r that keep Money Demand = Money Supply
The Quantity Theory of Money
The Solution
P
r
Y
M
Po
ro
2Po
Y’
M’
The Quantity Theory of Money
The Solution
P
r
Y
M
Po
ro
2Po
Y’
M’
Doubling price level keeps money supply constant and wealth constant. Hence no real effect.
The Quantity Theory of Money
The Solution
P
r
Y
M
Po
ro
2Po
Y’
M’
Doubling price level keeps money supply constant and wealth constant. Hence no real effect.
Subsequent lectures will take us through the mechanics, but first a discussion of the Quantity Theory and the Quantity Equation
The Quantity Theory of Money
The Quantity Equation
tttSt YPVM
The Quantity Theory of Money
Velocity
• Speed with which money turns over.
tttSt YPVM
The Quantity Theory of Money
Velocity
• Speed with which money turns over.
• Irving Fisher
tttSt YPVM
The Quantity Theory of Money
A Little Manipulation
tttSt YPVM
The Quantity Theory of Money
A Little Manipulation
tttSt YPVM
1111 tttSt YPVM
The Quantity Theory of Money
A Little Manipulation
tttSt YPVM
1111 tttSt YPVM
MMM St
St 1
The Quantity Theory of Money
The Quantity Equation
)1)(1()1)(1(Y
Y
P
P
V
V
M
M
V
V
Y
Y
M
M
P
P
The Quantity Theory of Money
From the Quantity Equation to the Quantity Theory
• The Quantity Equation is a tautology
The Quantity Theory of Money
From the Quantity Equation to the Quantity Theory
• The Quantity Equation is a tautology
• But what about V? Here, we get to the Quantity Theory
M
PYV
The Quantity Theory of Money
From the Quantity Equation to the Quantity Theory
• The Quantity Equation is a tautology
• But what about V? Here, we get to the Quantity Theory
M
PYV
0V
V
The Quantity Theory of Money
From the Quantity Equation to the Quantity Theory
Y
Y
M
M
P
P
V
V
Y
Y
M
M
P
P
The Quantity Theory of Money
Are We Done Yet?
The Quantity Theory of Money
Are We Done Yet?
• Evidence
• Qualifications
• Manipulation
• Application
The Quantity Theory of Money
End
©2003 Charles W. Upton. All rights reserved
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