Quantity Theory and Evidence
As restated by Milton Friedman, the quantity theory emphasizes the following relationship of the nominal value of expenditures and the price level to the quantity of money :
The plus signs indicate that a change in the money supply is hypothesized to change nominal expenditures and the price level in the same direction (for other variables held constant).
Friedman described the empirical regularity of substantial changes in the quantity of money and in the level of prices as perhaps the most-evidenced economic phenomenon on record. Empirical studies have found relations consistent with the models above and with causation running from money to prices. The short-run relation of a change in the money supply in the past has been relatively more associated with a change in real output than the price level in (1) but with much variation in the precision, timing, and size of the relation. For the long-run, there has been stronger support for (1) and (2) and no systematic association of and .
Read more about this topic: Quantity Theory Of Money
Famous quotes containing the words quantity, theory and/or evidence:
“All things will be produced in superior quantity and quality, and with greater ease, when each man works at a single occupation, in accordance with his natural gifts, and at the right moment, without meddling with anything else.”
—Plato (c. 427–347 B.C.)
“A theory of the middle class: that it is not to be determined by its financial situation but rather by its relation to government. That is, one could shade down from an actual ruling or governing class to a class hopelessly out of relation to government, thinking of gov’t as beyond its control, of itself as wholly controlled by gov’t. Somewhere in between and in gradations is the group that has the sense that gov’t exists for it, and shapes its consciousness accordingly.”
—Lionel Trilling (1905–1975)
“In fact, there is clear evidence of black intellectual superiority: in 1984, 92 percent of blacks voted to retire Ronald Reagan, compared to only 36 percent of whites.”
—Barbara Ehrenreich (b. 1941)