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:
“Something is infinite if, taking it quantity by quantity, we can always take something outside.”
—Aristotle (384–322 B.C.)
“The theory [before the twentieth century] ... was that all the jobs in the world belonged by right to men, and that only men were by nature entitled to wages. If a woman earned money, outside domestic service, it was because some misfortune had deprived her of masculine protection.”
—Rheta Childe Dorr (1866–1948)
“Washington has seldom seen so numerous, so industrious or so insidious a lobby. There is every evidence that money without limit is being spent to sustain this lobby.... I know that in this I am speaking for the members of the two houses, who would rejoice as much as I would to be released from this unbearable situation.”
—Woodrow Wilson (1856–1924)