Re: Macroeconomics Doubt - Quantity theory

Posted by Jatin Bavishi on Nov 30, 2014; 4:23am
URL: http://discussion-forum.276.s1.nabble.com/Macroeconomics-Doubt-Quantity-theory-tp7595649p7595654.html

The quantity theory of money says

MV=PY

A slight modification of the equation as per the Cambridge School would yield

M=kPY         {k=1/V}

=> M/P=kY

As per this model, money has no intrinsic value and is not held for speculative/precautionary purposes but only for transaction purpose.

If money was held for speculative purpose, the equation would be

M/P=kY-hi

where the last term encompasses the speculative demand.