SlideShare a Scribd company logo
1 of 18
Download to read offline
Quantity Theory of Money

          Chahir Zaki
     FEPS, Cairo University
    Second semester, 2012
Outline
1.   Introduction
2.   History
3.   Velocity
4.   Quantity Theory of Money
5.   Velocity in Egypt
Outline
1.   Introduction
2.   History
3.   Velocity
4.   Quantity Theory of Money
5.   Velocity in Egypt
Introduction
• The quantity theory of money is a theory of how the
nominal value of aggregate income is determined.

• Because it also tells us how much money is held for a
given amount of aggregate income, it is also a theory
of the demand for money.

• The most important feature of this theory is that it
suggests that interest rates have no effect on the
demand for money.
Outline
1.   Introduction
2.   History
3.   Velocity
4.   Quantity Theory of Money
5.   Velocity in Egypt
History
•The clearest exposition of the classical quantity theory
approach is found in the work of the American
economist Irving Fisher, in his influential book The
Purchasing Power of Money, published in 1911.

•Fisher wanted to examine the link between the total
quantity of money M (the money supply) and the total
amount of spending on final goods and services
produced in the economy P Y, where P is the price level
and Y is aggregate output (income or nominal GDP.)
Outline
1.   Introduction
2.   History
3.   Velocity
4.   Quantity Theory of Money
5.   Velocity in Egypt
Velocity of Money
             and Equation of Exchange
                            M = the money supply
                                P = price level
                        Y = aggregate output (income)
              P  Y  aggregate nominal income (nominal GDP)
V = velocity of money (average number of times per year that a dollar is spent)
                                       P Y
                                  V
                                        M
                            Equation of Exchange
                                M V  P  Y
Velocity of Money

• The concept that provides the link between M
and P , Y is called the velocity of money:
   • The rate of turnover of money
   • The average number of times per year that a
   dollar is spent in buying the total amount of
   goods and services produced in the economy.
Velocity of Money
• Irving Fisher reasoned that velocity is determined by the
institutions in an economy that affect the way individuals
conduct transactions.
     • If people use charge accounts and credit cards to conduct
     their transactions and consequently use money less often
     when making purchases, less money is required to conduct
     the transactions generated by nominal income (M↓ relative
     to P Y), and velocity (P Y )/M will increase.
     • Conversely, if it is more convenient for purchases to be
     paid for with cash or checks (both of which are money),
     more money is used to conduct the transactions generated
     by the same level of nominal income, and velocity will fall.
Outline
1.   Introduction
2.   History
3.   Velocity
4.   Quantity Theory of Money
5.   Velocity in Egypt
Quantity Theory
• Velocity fairly constant in short run


• Aggregate output at full-employment level


• Changes in money supply affect only the price level


• Movement in the price level results solely from change
  in the quantity of money
Quantity Theory of Money Demand
                     Divide both sides by V
                              1
                           M =  PY
                              V
           When the money market is in equilibrium
                             M = Md
                                      1
                            Let k 
                                   V
                          M d  k  PY
  Because k is constant, the level of tranactions generated by a
       fixed level of PY determines the quantity of M d
     The demand for money is not affected by interest rates
Outline
1.   Introduction
2.   History
3.   Velocity
4.   Quantity Theory of Money
5.   Velocity in Egypt
Velocity with M2
8



7



6



5



4



3



2



1



0
    FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Velocity with M1
1.6



1.4



1.2



 1



0.8



0.6



0.4



0.2



 0
      FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
References
• Chapter 19, Mishkin

• Central Bank of Egypt
Thanks for your attention

More Related Content

What's hot

Keynes & classical theory
Keynes & classical theoryKeynes & classical theory
Keynes & classical theoryIrfan Mohammad
 
The concept of the quantity theory of money
The concept of the quantity theory of moneyThe concept of the quantity theory of money
The concept of the quantity theory of moneyMBSAEED
 
The quantity theory of money
The quantity theory of moneyThe quantity theory of money
The quantity theory of moneyKhalid Aziz
 
Market equilibrium price
Market equilibrium priceMarket equilibrium price
Market equilibrium priceAbhishek Giri
 
Liquidity preference theory
Liquidity preference theory Liquidity preference theory
Liquidity preference theory AinulHossainRakib
 
The orthodox monetarist school
The orthodox monetarist schoolThe orthodox monetarist school
The orthodox monetarist schoolGus Agosto
 
Quantity Theory of Money
Quantity Theory of MoneyQuantity Theory of Money
Quantity Theory of MoneyAbdul Jamal
 
Monetarist and keynesian school of thoughts
Monetarist and keynesian school of thoughtsMonetarist and keynesian school of thoughts
Monetarist and keynesian school of thoughtsSana Hassan Afridi
 
MONEY SUPPLY AND MONETARY POLICY
MONEY SUPPLY AND MONETARY POLICYMONEY SUPPLY AND MONETARY POLICY
MONEY SUPPLY AND MONETARY POLICYmanuelmathew1
 
Post Keynesian Approach
Post Keynesian  ApproachPost Keynesian  Approach
Post Keynesian ApproachAyesha Arshad
 
Classical-Theory-of-Employment-Says-Law.pdf
Classical-Theory-of-Employment-Says-Law.pdfClassical-Theory-of-Employment-Says-Law.pdf
Classical-Theory-of-Employment-Says-Law.pdfKartikSawant5
 
General equilibrium theory
General equilibrium theoryGeneral equilibrium theory
General equilibrium theorykevalkakadiya
 
Cash balance approach of quantity theory of money
Cash balance approach of quantity theory of moneyCash balance approach of quantity theory of money
Cash balance approach of quantity theory of moneyJarin Aishy
 
Restatement of quantity theory of money
Restatement of quantity theory of moneyRestatement of quantity theory of money
Restatement of quantity theory of moneyNayan Vaghela
 

What's hot (20)

Keynes & classical theory
Keynes & classical theoryKeynes & classical theory
Keynes & classical theory
 
Ie 03 (1)
Ie 03 (1)Ie 03 (1)
Ie 03 (1)
 
The concept of the quantity theory of money
The concept of the quantity theory of moneyThe concept of the quantity theory of money
The concept of the quantity theory of money
 
The quantity theory of money
The quantity theory of moneyThe quantity theory of money
The quantity theory of money
 
Market equilibrium price
Market equilibrium priceMarket equilibrium price
Market equilibrium price
 
Liquidity preference theory
Liquidity preference theory Liquidity preference theory
Liquidity preference theory
 
The orthodox monetarist school
The orthodox monetarist schoolThe orthodox monetarist school
The orthodox monetarist school
 
Quantity Theory of Money
Quantity Theory of MoneyQuantity Theory of Money
Quantity Theory of Money
 
Philip's Curve
Philip's CurvePhilip's Curve
Philip's Curve
 
Monetarist and keynesian school of thoughts
Monetarist and keynesian school of thoughtsMonetarist and keynesian school of thoughts
Monetarist and keynesian school of thoughts
 
MONEY SUPPLY AND MONETARY POLICY
MONEY SUPPLY AND MONETARY POLICYMONEY SUPPLY AND MONETARY POLICY
MONEY SUPPLY AND MONETARY POLICY
 
Post Keynesian Approach
Post Keynesian  ApproachPost Keynesian  Approach
Post Keynesian Approach
 
Philips curve
Philips curvePhilips curve
Philips curve
 
NAIRU
NAIRUNAIRU
NAIRU
 
Classical-Theory-of-Employment-Says-Law.pdf
Classical-Theory-of-Employment-Says-Law.pdfClassical-Theory-of-Employment-Says-Law.pdf
Classical-Theory-of-Employment-Says-Law.pdf
 
Liquidity Preference Theory
Liquidity Preference TheoryLiquidity Preference Theory
Liquidity Preference Theory
 
Accelerator Theory
Accelerator TheoryAccelerator Theory
Accelerator Theory
 
General equilibrium theory
General equilibrium theoryGeneral equilibrium theory
General equilibrium theory
 
Cash balance approach of quantity theory of money
Cash balance approach of quantity theory of moneyCash balance approach of quantity theory of money
Cash balance approach of quantity theory of money
 
Restatement of quantity theory of money
Restatement of quantity theory of moneyRestatement of quantity theory of money
Restatement of quantity theory of money
 

Viewers also liked

Nani quantitative theory of money
Nani quantitative theory of moneyNani quantitative theory of money
Nani quantitative theory of moneyVikram g b
 
Keynesian theory of money
Keynesian theory of moneyKeynesian theory of money
Keynesian theory of moneyDina Ertoleu
 
Demand and supply of money
Demand and supply of moneyDemand and supply of money
Demand and supply of moneyDaksh Bapna
 
Characteristics of Liabilities
Characteristics of LiabilitiesCharacteristics of Liabilities
Characteristics of Liabilitiesrrod33
 
Money supply and int rate 0810
Money supply and int rate 0810Money supply and int rate 0810
Money supply and int rate 0810mayankvns
 
Delivering good value for money in a challenging economic environment
Delivering good value for money in a challenging economic environmentDelivering good value for money in a challenging economic environment
Delivering good value for money in a challenging economic environmentwalescva
 
M b chapter_2 (1)
M b chapter_2 (1)M b chapter_2 (1)
M b chapter_2 (1)Nisar Rind
 
Assets and liablity
Assets and liablityAssets and liablity
Assets and liablityNandini R
 
Cost of Inflation
Cost of InflationCost of Inflation
Cost of Inflationjeremyrudy
 

Viewers also liked (20)

Nani quantitative theory of money
Nani quantitative theory of moneyNani quantitative theory of money
Nani quantitative theory of money
 
Quantity theory of money
Quantity theory of moneyQuantity theory of money
Quantity theory of money
 
4 money view
4 money view4 money view
4 money view
 
Keynesian theory of money
Keynesian theory of moneyKeynesian theory of money
Keynesian theory of money
 
Demand for Money
Demand for MoneyDemand for Money
Demand for Money
 
Qtm
QtmQtm
Qtm
 
Money
MoneyMoney
Money
 
Milton friedman
Milton friedmanMilton friedman
Milton friedman
 
Froyen10
Froyen10Froyen10
Froyen10
 
Money
MoneyMoney
Money
 
NATIONAL INCOME PPT
NATIONAL INCOME PPTNATIONAL INCOME PPT
NATIONAL INCOME PPT
 
Demand and supply of money
Demand and supply of moneyDemand and supply of money
Demand and supply of money
 
Velocity
VelocityVelocity
Velocity
 
Characteristics of Liabilities
Characteristics of LiabilitiesCharacteristics of Liabilities
Characteristics of Liabilities
 
Money supply and int rate 0810
Money supply and int rate 0810Money supply and int rate 0810
Money supply and int rate 0810
 
The value of money (2)
The value of money (2)The value of money (2)
The value of money (2)
 
Delivering good value for money in a challenging economic environment
Delivering good value for money in a challenging economic environmentDelivering good value for money in a challenging economic environment
Delivering good value for money in a challenging economic environment
 
M b chapter_2 (1)
M b chapter_2 (1)M b chapter_2 (1)
M b chapter_2 (1)
 
Assets and liablity
Assets and liablityAssets and liablity
Assets and liablity
 
Cost of Inflation
Cost of InflationCost of Inflation
Cost of Inflation
 

Similar to 3 quantity theory

Quantity theory of money - economics
Quantity theory of money - economicsQuantity theory of money - economics
Quantity theory of money - economicsRiya Aseef
 
Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit iiDhina Karan
 
Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit iiDhina Karan
 
Quantity theory of money - Cash Transaction Approach
Quantity theory of money - Cash Transaction ApproachQuantity theory of money - Cash Transaction Approach
Quantity theory of money - Cash Transaction ApproachJayashreechandran2
 
Monetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of MoneyMonetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of MoneySaradha Shyam
 
MACROECONOMICS-CH4
MACROECONOMICS-CH4MACROECONOMICS-CH4
MACROECONOMICS-CH4kkjjkevin03
 
Inflation SFLS types
Inflation SFLS typesInflation SFLS types
Inflation SFLS typesianhorner3
 
Monetary model of exchange rates
Monetary model of exchange ratesMonetary model of exchange rates
Monetary model of exchange ratesAsusena Tártaros
 
MB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& BankingMB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& Bankingfaiqaishtiaq
 
Quantity theory of money
Quantity theory of moneyQuantity theory of money
Quantity theory of moneyyabadadoo
 
mishkin_embfm12ege_ch20.pptx
mishkin_embfm12ege_ch20.pptxmishkin_embfm12ege_ch20.pptx
mishkin_embfm12ege_ch20.pptxShahidRandhwa
 
quantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and studentsquantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and studentsMengsongNguon
 
peranan uang dalam perekonomian (1).pptx
peranan uang dalam perekonomian (1).pptxperanan uang dalam perekonomian (1).pptx
peranan uang dalam perekonomian (1).pptxyola145905
 

Similar to 3 quantity theory (20)

Quantity theory of money - economics
Quantity theory of money - economicsQuantity theory of money - economics
Quantity theory of money - economics
 
Money money
Money moneyMoney money
Money money
 
6 1 money and inflation
6 1 money and inflation6 1 money and inflation
6 1 money and inflation
 
Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit ii
 
Money & banking unit ii
Money & banking unit iiMoney & banking unit ii
Money & banking unit ii
 
ch 2 M& B.pptx
ch 2 M& B.pptxch 2 M& B.pptx
ch 2 M& B.pptx
 
Quantity theory of money - Cash Transaction Approach
Quantity theory of money - Cash Transaction ApproachQuantity theory of money - Cash Transaction Approach
Quantity theory of money - Cash Transaction Approach
 
Monetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of MoneyMonetary Economics-Quantity Theory of Money
Monetary Economics-Quantity Theory of Money
 
MACROECONOMICS-CH4
MACROECONOMICS-CH4MACROECONOMICS-CH4
MACROECONOMICS-CH4
 
Inflation SFLS types
Inflation SFLS typesInflation SFLS types
Inflation SFLS types
 
Monetary model of exchange rates
Monetary model of exchange ratesMonetary model of exchange rates
Monetary model of exchange rates
 
MB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& BankingMB Week7 by Aamir waheed.ppt money a& Banking
MB Week7 by Aamir waheed.ppt money a& Banking
 
Functions of money
Functions of moneyFunctions of money
Functions of money
 
4 money view
4 money view4 money view
4 money view
 
4 money view
4 money view4 money view
4 money view
 
Quantity theory of money
Quantity theory of moneyQuantity theory of money
Quantity theory of money
 
Lecture 6.pptx
Lecture 6.pptxLecture 6.pptx
Lecture 6.pptx
 
mishkin_embfm12ege_ch20.pptx
mishkin_embfm12ege_ch20.pptxmishkin_embfm12ege_ch20.pptx
mishkin_embfm12ege_ch20.pptx
 
quantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and studentsquantity theory of money is theory of money for banker, researchers and students
quantity theory of money is theory of money for banker, researchers and students
 
peranan uang dalam perekonomian (1).pptx
peranan uang dalam perekonomian (1).pptxperanan uang dalam perekonomian (1).pptx
peranan uang dalam perekonomian (1).pptx
 

More from Nader Allam (20)

7 central banks
7 central banks7 central banks
7 central banks
 
6 islm(2)
6 islm(2)6 islm(2)
6 islm(2)
 
3 quantity theory
3 quantity theory3 quantity theory
3 quantity theory
 
6 islm(2)
6 islm(2)6 islm(2)
6 islm(2)
 
6 islm(2)
6 islm(2)6 islm(2)
6 islm(2)
 
7 central banks
7 central banks7 central banks
7 central banks
 
7 central banks
7 central banks7 central banks
7 central banks
 
5 islm(1)
5 islm(1)5 islm(1)
5 islm(1)
 
3 quantity theory
3 quantity theory3 quantity theory
3 quantity theory
 
3 quantity theory
3 quantity theory3 quantity theory
3 quantity theory
 
3 quantity theory
3 quantity theory3 quantity theory
3 quantity theory
 
2 money
2 money2 money
2 money
 
2 money
2 money2 money
2 money
 
1 introduction
1 introduction1 introduction
1 introduction
 
2 money
2 money2 money
2 money
 
1 introduction
1 introduction1 introduction
1 introduction
 
7 central banks
7 central banks7 central banks
7 central banks
 
7 central banks
7 central banks7 central banks
7 central banks
 
6 islm(2)
6 islm(2)6 islm(2)
6 islm(2)
 
5 islm(1)
5 islm(1)5 islm(1)
5 islm(1)
 

Recently uploaded

Introduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxIntroduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxJemalSeid25
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023Steve Rader
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Reportamberjiles31
 
Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..dlewis191
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZKanakChauhan5
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsyasinnathani
 
PDT 89 - $1.4M - Seed - Plantee Innovations.pdf
PDT 89 - $1.4M - Seed - Plantee Innovations.pdfPDT 89 - $1.4M - Seed - Plantee Innovations.pdf
PDT 89 - $1.4M - Seed - Plantee Innovations.pdfHajeJanKamps
 
Slicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinSlicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinAnton Skornyakov
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfAnhNguyen97152
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toumarfarooquejamali32
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...AustraliaChapterIIBA
 
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxCracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxWorkforce Group
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyHanna Klim
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Winbusinessin
 
Plano de marketing- inglês em formato ppt
Plano de marketing- inglês  em formato pptPlano de marketing- inglês  em formato ppt
Plano de marketing- inglês em formato pptElizangelaSoaresdaCo
 
Live-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarLive-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarNathanielSchmuck
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...Brian Solis
 

Recently uploaded (20)

Introduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptxIntroduction to The overview of GAAP LO 1-5.pptx
Introduction to The overview of GAAP LO 1-5.pptx
 
NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023NASA CoCEI Scaling Strategy - November 2023
NASA CoCEI Scaling Strategy - November 2023
 
Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024Borderless Access - Global B2B Panel book-unlock 2024
Borderless Access - Global B2B Panel book-unlock 2024
 
Project Brief & Information Architecture Report
Project Brief & Information Architecture ReportProject Brief & Information Architecture Report
Project Brief & Information Architecture Report
 
Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..Team B Mind Map for Organizational Chg..
Team B Mind Map for Organizational Chg..
 
WAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdfWAM Corporate Presentation Mar 25 2024.pdf
WAM Corporate Presentation Mar 25 2024.pdf
 
Mihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZMihir Menda - Member of Supervisory Board at RMZ
Mihir Menda - Member of Supervisory Board at RMZ
 
Data skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story pointsData skills for Agile Teams- Killing story points
Data skills for Agile Teams- Killing story points
 
PDT 89 - $1.4M - Seed - Plantee Innovations.pdf
PDT 89 - $1.4M - Seed - Plantee Innovations.pdfPDT 89 - $1.4M - Seed - Plantee Innovations.pdf
PDT 89 - $1.4M - Seed - Plantee Innovations.pdf
 
Slicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup BerlinSlicing Work on Business Agility Meetup Berlin
Slicing Work on Business Agility Meetup Berlin
 
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdfGraham and Doddsville - Issue 1 - Winter 2006 (1).pdf
Graham and Doddsville - Issue 1 - Winter 2006 (1).pdf
 
Lecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb toLecture_6.pptx English speaking easyb to
Lecture_6.pptx English speaking easyb to
 
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
IIBA® Melbourne - Navigating Business Analysis - Excellence for Career Growth...
 
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptxCracking the ‘Business Process Outsourcing’ Code Main.pptx
Cracking the ‘Business Process Outsourcing’ Code Main.pptx
 
Anyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agencyAnyhr.io | Presentation HR&Recruiting agency
Anyhr.io | Presentation HR&Recruiting agency
 
Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024Ethical stalking by Mark Williams. UpliftLive 2024
Ethical stalking by Mark Williams. UpliftLive 2024
 
Plano de marketing- inglês em formato ppt
Plano de marketing- inglês  em formato pptPlano de marketing- inglês  em formato ppt
Plano de marketing- inglês em formato ppt
 
Live-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry WebinarLive-Streaming in the Music Industry Webinar
Live-Streaming in the Music Industry Webinar
 
Investment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV IndustriesInvestment Opportunity for Thailand's Automotive & EV Industries
Investment Opportunity for Thailand's Automotive & EV Industries
 
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
The End of Business as Usual: Rewire the Way You Work to Succeed in the Consu...
 

3 quantity theory

  • 1. Quantity Theory of Money Chahir Zaki FEPS, Cairo University Second semester, 2012
  • 2. Outline 1. Introduction 2. History 3. Velocity 4. Quantity Theory of Money 5. Velocity in Egypt
  • 3. Outline 1. Introduction 2. History 3. Velocity 4. Quantity Theory of Money 5. Velocity in Egypt
  • 4. Introduction • The quantity theory of money is a theory of how the nominal value of aggregate income is determined. • Because it also tells us how much money is held for a given amount of aggregate income, it is also a theory of the demand for money. • The most important feature of this theory is that it suggests that interest rates have no effect on the demand for money.
  • 5. Outline 1. Introduction 2. History 3. Velocity 4. Quantity Theory of Money 5. Velocity in Egypt
  • 6. History •The clearest exposition of the classical quantity theory approach is found in the work of the American economist Irving Fisher, in his influential book The Purchasing Power of Money, published in 1911. •Fisher wanted to examine the link between the total quantity of money M (the money supply) and the total amount of spending on final goods and services produced in the economy P Y, where P is the price level and Y is aggregate output (income or nominal GDP.)
  • 7. Outline 1. Introduction 2. History 3. Velocity 4. Quantity Theory of Money 5. Velocity in Egypt
  • 8. Velocity of Money and Equation of Exchange M = the money supply P = price level Y = aggregate output (income) P  Y  aggregate nominal income (nominal GDP) V = velocity of money (average number of times per year that a dollar is spent) P Y V M Equation of Exchange M V  P  Y
  • 9. Velocity of Money • The concept that provides the link between M and P , Y is called the velocity of money: • The rate of turnover of money • The average number of times per year that a dollar is spent in buying the total amount of goods and services produced in the economy.
  • 10. Velocity of Money • Irving Fisher reasoned that velocity is determined by the institutions in an economy that affect the way individuals conduct transactions. • If people use charge accounts and credit cards to conduct their transactions and consequently use money less often when making purchases, less money is required to conduct the transactions generated by nominal income (M↓ relative to P Y), and velocity (P Y )/M will increase. • Conversely, if it is more convenient for purchases to be paid for with cash or checks (both of which are money), more money is used to conduct the transactions generated by the same level of nominal income, and velocity will fall.
  • 11. Outline 1. Introduction 2. History 3. Velocity 4. Quantity Theory of Money 5. Velocity in Egypt
  • 12. Quantity Theory • Velocity fairly constant in short run • Aggregate output at full-employment level • Changes in money supply affect only the price level • Movement in the price level results solely from change in the quantity of money
  • 13. Quantity Theory of Money Demand Divide both sides by V 1 M =  PY V When the money market is in equilibrium M = Md 1 Let k  V M d  k  PY Because k is constant, the level of tranactions generated by a fixed level of PY determines the quantity of M d The demand for money is not affected by interest rates
  • 14. Outline 1. Introduction 2. History 3. Velocity 4. Quantity Theory of Money 5. Velocity in Egypt
  • 15. Velocity with M2 8 7 6 5 4 3 2 1 0 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
  • 16. Velocity with M1 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10
  • 17. References • Chapter 19, Mishkin • Central Bank of Egypt
  • 18. Thanks for your attention