Foundation
The foundation of the equation of exchange is the more complex relation
where
- and are the respective price and quantity of the i-th transaction.
- is a row vector of the .
- is a column vector of the .
The equation
is based upon the presumption of the classical dichotomy — that there is a relatively clean distinction between overall increases or decreases in prices and underlying, “real” economic variables — and that this distinction may be captured in terms of price indices, so that inflationary or deflationary components of p may be extracted as the multiplier P, which is the aggregate price level:
where is a row vector of relative prices; and likewise for
Read more about this topic: Equation Of Exchange
Famous quotes containing the word foundation:
“No genuine equality, no real freedom, no true manhood or womanhood can exist on any foundation save that of pecuniary independence. As a right over a man’s subsistence is a power over his moral being, so a right over a woman’s subsistence enslaves her will, degrades her pride and vitiates her whole moral nature.”
—Susan B. Anthony (1820–1907)
“Laws remain in credit not because they are just, but because they are laws. That is the mystic foundation of their authority; they have no other.”
—Michel de Montaigne (1533–1592)
“If all political power be derived only from Adam, and be to descend only to his successive heirs, by the ordinance of God and divine institution, this is a right antecedent and paramount to all government; and therefore the positive laws of men cannot determine that, which is itself the foundation of all law and government, and is to receive its rule only from the law of God and nature.”
—John Locke (1632–1704)