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:
“Value is the life-giving power of anything; cost, the quantity of labour required to produce it; its price, the quantity of labour which its possessor will take in exchange for it.”
—John Ruskin (1819–1900)
“Could Shakespeare give a theory of Shakespeare?”
—Ralph Waldo Emerson (1803–1882)
“There is evidence that all too many people are approaching parenthood with a dangerous lack of knowledge and skill. The result is that many children are losing out on what ought to be an undeniable right—the right to have parents who know how to be good parents, parents skilled in the art of “parenting.””
—T. H. Bell (20th century)