Hello,
So we were studying the chapter money growth and inflation. I find it so challenging, is it just me?
There are so many sub topics and examples. However, the quantity theory of money gives a lot of information.
M*V = P*Y
Quantity of money (M)
Velocity of money (V) (the rate at which a single quantity of dollar flows in market.)
Price of Output (P)
Amount of output (Y)
The velocity of money is constant over time, thus increase in money supply must increase the nominal value of output (P*Y).
We can also see it this way, when the fed increases the money supply M, it results in the increase of Price level P as Y does not increase due to increase in money supply.
Confusing right? I have the same difficulty. I will have to go through the chapter again and see if I can come up with a easier way to understand this.
But for now, time to make my grocery list for this week! :)
So we were studying the chapter money growth and inflation. I find it so challenging, is it just me?
There are so many sub topics and examples. However, the quantity theory of money gives a lot of information.
M*V = P*Y
Quantity of money (M)
Velocity of money (V) (the rate at which a single quantity of dollar flows in market.)
Price of Output (P)
Amount of output (Y)
The velocity of money is constant over time, thus increase in money supply must increase the nominal value of output (P*Y).
We can also see it this way, when the fed increases the money supply M, it results in the increase of Price level P as Y does not increase due to increase in money supply.
Confusing right? I have the same difficulty. I will have to go through the chapter again and see if I can come up with a easier way to understand this.
But for now, time to make my grocery list for this week! :)
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