| 单词 | quantity theory of money |
| 释义 | quantity theory of money The theory that the price level is proportional to the quantity of money. This is expressed by the quantity equation, MV = PT, where M is the quantity of money, V is the velocity of circulation, P is the price level, and T is the volume of transactions. It is argued by supporters of the quantity theory that T is determined by supply-side forces, which determine the level of real output, and institutional factors, which determine the ratio of total transactions to output; and V is determined by the legal status and operating habits of the financial system. Thus M and P must vary in proportion. These assumptions lead to Milton Friedman's statement that inflation is caused by increases in the money supply. Critics of the quantity theory urge that it can only hold in the very long run, if at all. Desired holdings of real balances are a function of the rate of inflation, so that if an initial increase in the money supply sets off an inflationary process, prices tend to outstrip the money supply as desired real balances fall. Even if the quantity theory worked for increases in the money supply, there is great doubt whether it would work symmetrically for decreases in M. Prices, and more particularly money wages, are resistant to decreases, and the initial effect of a reduction in M would be a rise in interest rates and a fall in T. Given the widespread use of contracts specified in money terms, if P fell significantly this would tend to impair the solvency of many borrowers and lead to bankruptcies, disrupting business activity and further reducing T. Maybe the quantity theory would work in the very long run, but it would be ages before this could be checked, and it gives almost no guidance on how V, T, or P would react in the first few years after any major change in M. |
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