How does Fisher’s quantity theory of money differ from the Keynes quantity theory of money?
What will be an ideal response?
Answer: Following are the differences between the Fisher quantity theory of money and Keynes quantity theory of money:
Fisher simply states that there is a direct and proportional relationship between the money supply and price level. An increase in the money supply causes a rise in the price level.
MV =PY
There is no change in V and Y.
Thus the change in M produces a direct impact on the P. Output does not change.
Keynes has reformulated the quantity theory of money. Keynes does not see direct relationship between the money supply and price level. Thus, When money supply increases, the interest rate declines. Decline in the interest rate drive up the investment expenditure. Rise in the expenditure leads to rise in the aggregate demand and output.
Eventually, output rise. Unlike the Fisher version of quantity theory of money, keynes strongly believes that money supply increase will drive up the output level and employments would be generated.
You might also like to view...
The Rule of ________ can be used to calculate the number of years that it takes for the level of a variable to ________
A) 20; double B) 70; triple C) 70; double D) 20; triple E) thumb; double
A decrease in the demand for eggs results in a surplus of eggs at the original equilibrium price. Explain how market forces will act to eliminate the surplus
What will be an ideal response?
The slope of the production possibilities frontier is defined to be the marginal rate of
A) transformation. B) technical substitution. C) substitution. D) profit.
If the world supply of diamonds decreases, diamonds become more valuable, and therefore, the consumer surplus derived from diamonds increases
a. True b. False Indicate whether the statement is true or false