Perhaps the most important debate in economics took place among the Keynsians and the Monterists. Monterists contend that the velocity of money is constant,and that the supply of goods and services that can be produced is fixed in the short run. Therfore if the Fed raises the money supply by 5%,we will see a rise in prices by 5%!
Keynsians instead make the claim that monentary policy does not work directly through consumptions,and instead claim that monentary policy works directly thrugh intrest rates and investment. Additionaly Keynsians suggest that if the Federal Reserve increases the money supply than individuals must not hoard in order for the policy to be automatically effective. Furthermore even if theses consumers do spend they may just buy stocks and bonds instead of reall assets,thus lowering the intrest rate. by now the implications should be obvious,and it should already be apperent to the reader that keynsians think that GDP will only budge if households and buinesses borrow from banks and than buy goods and services.
Non-Monetarist quantity theory=MV=PQ
V=Velocity
M=money supply
PQ=nominal GDP(p is the price level,and Q is the amount of goods and services produced which is real GDP)
Monetarist Theory
V and Q are erased from the problem,and the conclusion is that any change in M will only be felt by P.
Monetarism states that MV = PY. Keynesians agree with this equation, the only difference being that they don't agree that V is stable in the short run because of the erroneously perceived instability of the market.
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MV=PY
what does y mean...GDP?
More or less, yes. Y stands for aggregate output, which often times is characterized by GDP.
Ok well next time try to tell me what Y is,although anyone with enough common sense should know that Y usually means GDP it would be nice to point what Y is.
Furthermore i am not so sure if keynsians and montersists agree with the same equation.
For example the original model was MV=PQ,but I think Keynes may have still used this. The only thing he added to the problem was that people may not always use there money to spend on consumer services,but instead may use money for specultative purposes also.
The Monterist theory of money drops the V and Q because they conclude that any change in the money supply will directly effect prices.
You're wrong. Keynesians and monetarists agree on the same basic equation. The only difference is that Keynesians view the market as inherently unstable and do not believe that V is stable in the short run, whereas monetarists disagree.
The difference between equations is purely due to the theoretical equation vs. empirical equation. Since there is no pure way to gather aggregate output, Y is replaced with some measure of national income, sometimes shown as Q.
you are going to have to show me that keynsians universally agree on the same equation.
Do you think we're here to educate you on economics, you ingrate? That is your own affair. Do any economics course and you will learn that Keynesians and Monetarists (not "Keynsians" or "Montersists") agree that in the long-run money is "neutral". The equation is a basic tautology employed by economists, and dates back to J. S. Mill.
-Jon
To darkness I condemn you...
again i disagree.
Isn't that sad. Goodbye.
Obviously there is no such thing, in reality, as a velocity of money. So don't break your mind trying to work it out.
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http://www.oswego.edu/~edunne/340chapter21.html
Again, the doubt over the equation is whether or not Y (or Q) and V are stable.
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