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:
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—Aristotle (384–322 B.C.)
“A theory if you hold it hard enough
And long enough gets rated as a creed....”
—Robert Frost (1874–1963)
“However backwards the world has been in former ages in the discovery of such points as GOD never meant us to know,—we have been more successful in our own days:Mthousands can trace out now the impressions of this divine intercourse in themselves, from the first moment they received it, and with such distinct intelligence of its progress and workings, as to require no evidence of its truth.”
—Laurence Sterne (1713–1768)