Quantity Theory of Money
The quantity theory of money is an important tool for thinking about issues in macroeconomics.
The equation for the quantity theory of money is: M x V = P x Y
What do the variables represent?
M is fairly straightforward – it’s the money supply in an economy.
A typical dollar bill can go on a long journey during the course of a single year. It can be spent in exchange for goods and services numerous times. In the quantity theory of money, how many times an average dollar is exchanged is its velocity, or V.
The price level of goods and services in an economy is represented by P.
Finally, Y is all of the finished goods and services sold in an economy – aka real GDP. When you multiply P x Y, the result is nominal GDP.
Actually, when you multiply M x V (the money supply times the velocity of money), you also get nominal GDP. M x V is equal to P x Y by definition – it’s an identity equation.
You can think about the two sides of the equation like this: the left (M x V) covers the actions of consumers while the right (P x Y) covers the actions of producers. Since everything that is sold is bought by someone, these two sides will remain equal.
Up next, we’ll use the quantity theory of money to discuss the causes of inflation.
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https://youtu.be/UvsiJSy5D44
watch this video Quantity Theory of Money with best material and with easiest method.
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How do we measure the stuff we sell?
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Sir I can’t understand ur English plz show it below the video so that I can understand by seeing it..
Thank you. I came with result of 2.9. Prices will rise 2.9 times as (1*2) * (1.1/1.5) = x * (1*0.50). And if or after velocity spike up to level 1.5, the prices will be 4x of levels of beginning of 2021.
Sir I have one doubt. Is this Y represents the total amount of goods and services exchanged for money or transactions performed?
Can anyone help me out here – if MV = PY, in that case, money supply is inversely proportional to velocity of money that is changing hands. How is that possible? If money supply increases, velocity has to increase!
Great
Well Explain Sir Thanks
If the professors would be this clear to explain theories, the university would be better place to visit
This is what unleashed the consumerist beast on the world which leads to destruction of the environment.
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What I’m about to type confuses me.
M and V have a proportionate relationship, if there’s more money in an economy, you’d expect more velocity.
But on the other hand, P and Y have an inverse relationship.
If goods cost more, you’re less likely to buy it.
You literally made me understand better in 3 mins than an hour session in class
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You top
Is the letter Y stands for Yield?
https://youtu.be/jGITrc_e3l0
So going off of this, why are banks allowed to lend more than they have in reserves? Wouldn’t that lead to inflation? Also, why is velocity so ignored in this equation? That is literally the demand of the consumers rising and falling and thus the amount of money in actual use in the economy. Simply having more money in the economy shouldn’t matter if it is saved and not spent. Also, in later videos, you claim that inflation comes when money is spent at higher volumes even as the supply of the product is increased. This should not change the equilibrium price of the products and cause inflation. Instead, this should represent growth. This equation seems unnecessary in explaining the economy, especially inflation as you all have explained it.
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Here from EGCC
The squeaking pen in this video makes it unwatchable with headphones on
Sir one question .
What happens to quality theory of money if it’s a digital dollar bill
Make video on Cambridge cash balance approach please..
What an amazing explanation!
This is a bogus theory the government uses to print as much money as they can to cheat you out of your savings. Please read Frank Shostak’s article on money velocity myth on mises.org to get a better understanding.
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University professors make this seem so much more complicated than it really is. I needed this.
i dont understand that. if the horse is traded more than one time the velocity goes up but the amount of goods and services stay the same. if they don’t then you could just exchange y and v for they would be the same. and since the amount of money spent and the accumulated prices of all goods and services is also the same I don’t see how this equation tells us anything new. it just reformulates m by using p and v by using y. do I miss something?
This video is amazing
Dear professor, could you please explain why "Y is all the finished goods and services sold in an economy, so Y is real GDP."
AND Y is the quantity OR market value of all the finished goods and services sold ?
I can’t figure out why Y times the average price level is the nominal GDP.
looking for your reply, thanks !
What happens if the dollar goes to a foreign country and gets exchanged a few times at airports, do those count?
beautiful
Hello!! Thanks for the video
It’s great.
I really like the very unique examples the video uses at the beginning like a pupusa! I was amazed! Thank you so much for the video it helped me tremendously!
Shabhash
What happens when people who are supposed to be responsible for creating more Y take say. . . I dunno, lets be conservative. . .billions of dollars out of M and shift it into X bank accounts off shore, effectively removing cash from circulation entirely?
Thank u – 10000 times. Completed in just 3 minutes what i have been trying to understand from 1 hour
Great video, thanks
Thank you for the arabic sub ❤️ this video really help me for my homework
voila .
was sure the dude who really understood it could explain it simply and close the deal , been walking through the web for 30mn before i found u .
thank you , sir .
Wow, such a great video! Clear and great use of visuals.
This was so good…you actually explained a hard theory in simple way
Thank you 😊
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Always watch YouTube clips before lecture
hi there, can i know what software you use to make these video clips, please?