Quantity Theory of Money

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Күн бұрын

The quantity theory of money is an important tool for thinking about issues in macroeconomics.
The equation for the quantity theory of money is: M x V = P x Y
What do the variables represent?
M is fairly straightforward - it’s the money supply in an economy.
A typical dollar bill can go on a long journey during the course of a single year. It can be spent in exchange for goods and services numerous times. In the quantity theory of money, how many times an average dollar is exchanged is its velocity, or V.
The price level of goods and services in an economy is represented by P.
Finally, Y is all of the finished goods and services sold in an economy - aka real GDP. When you multiply P x Y, the result is nominal GDP.
Actually, when you multiply M x V (the money supply times the velocity of money), you also get nominal GDP. M x V is equal to P x Y by definition - it’s an identity equation.
You can think about the two sides of the equation like this: the left (M x V) covers the actions of consumers while the right (P x Y) covers the actions of producers. Since everything that is sold is bought by someone, these two sides will remain equal.
Up next, we’ll use the quantity theory of money to discuss the causes of inflation.
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00:00 A Dollar's Journey in a Year
00:49 Variables of the Quantity Theory of Money: M x V = P x Y
02:19 Another Perspective on the Equation

Пікірлер: 151

@ziggy6060 3 жыл бұрын

University professors make this seem so much more complicated than it really is. I needed this.

@9000Arko 7 жыл бұрын

Dear lord, this is the best thing i saw in my entire semester. Thank you!

@dirk-jantoot1029 2 жыл бұрын

I love the analogy with physics too! Essentially m * v can be thought of as momentum, and since this represents GDP we can think of GDP like momentum. It would be very interesting to see how far this analogy could stretch. Is there some kind of (loose) analogy of conservation of energy? If we look at all the dollar bills(including digital) in the economy and look at their distribution, do we get a maxwell Boltzmann distribution? Can we define a 'temperature' of the economy by looking at the statistical properties of all dollars and their velocities?

@anirudhashok7537 3 жыл бұрын

You literally made me understand better in 3 mins than an hour session in class

@amirestebari1470 5 жыл бұрын

Excellent! Thank you so much for sharing this and explaining the concept much better than my course book.

@DAB009 7 жыл бұрын

you are simply the best

@augustusprime0_o 5 жыл бұрын

better than all the rest...

@kmdao7380 3 жыл бұрын

voila . was sure the dude who really understood it could explain it simply and close the deal , been walking through the web for 30mn before i found u . thank you , sir .

@diy-projects 5 жыл бұрын

2:48 when the magnifying glass skips over P, that's the same kind of loneliness I feel every day. 1 like = 1 cry for P

@libertardsbeware4180 5 жыл бұрын

@wassermannberlin9848 3 жыл бұрын

At the year 2013 was discovered The Progressive Growth of Money Supply Principle, which say you how the Money Supply must growth, i.e., the quantity of money that market needs: kzfaq.info/get/bejne/n897pZCalZiWnY0.html If we increase the money supply by an amount equal to the sum of interest generated by the financial system during the preceding period, the market interest rate will be the natural interest (Wicksell). The Principle will force Central Banks to change de monetary policies.

@diy-projects 3 жыл бұрын

@@wassermannberlin9848 That's gonna be a solid no from me, thanks

@wassermannberlin9848 3 жыл бұрын

@@diy-projects Thank you for your opinion, but could you tell me why?

@LivingEconomics 3 жыл бұрын

kzfaq.info/get/bejne/oK15h9WUxMuXnGQ.html Understand inflation in easy way

@Vanessalopez-bz5dr 4 жыл бұрын

I really like the very unique examples the video uses at the beginning like a pupusa! I was amazed! Thank you so much for the video it helped me tremendously!

@unnamedexodus3902 3 жыл бұрын

Wow, such a great video! Clear and great use of visuals.

@Yippie37 7 жыл бұрын

Wow, still posting videos, and one I was really interested in, thank you!!!

@MarginalRevolutionUniversity 7 жыл бұрын

We post new videos every Tuesday! :) -Meg

@masudblack405 5 жыл бұрын

Really very much helpful video. simple and understandable

@b.anjali8285 2 жыл бұрын

You r the best, your video is very helpful for me, May God bless you abundantly

@riiajais1833 2 жыл бұрын

Thank u - 10000 times. Completed in just 3 minutes what i have been trying to understand from 1 hour

@mareksniknais5415 3 жыл бұрын

Thank you. I came with result of 2.9. Prices will rise 2.9 times as (1*2) * (1.1/1.5) = x * (1*0.50). And if or after velocity spike up to level 1.5, the prices will be 4x of levels of beginning of 2021.

@sagarchowdhury4391 5 жыл бұрын

Really it's great to watch..♥

@namiapa1350 Жыл бұрын

Better than classroom teachings 👍

@Evgeniyazh 6 жыл бұрын

I learned today what is pupusa! I heard it first time!!!🔊🤔

@cancelled_user 4 жыл бұрын

LOL, me too

@sivvu_siv 3 жыл бұрын

Lol❤️😂

@User-qr6xs 7 жыл бұрын

We've studied this equation in relation with inflation and unemployment, m is the cause of inflation, government spending to boost employment is halted by the structural unemployment which thenly causes stagflation, and more money drowning the economy leading to skyrocketing prices and ultimately more inflation and more unemployment

@mountainbrotherproductions421 6 жыл бұрын

Thanks a lot man. It really helped me because I had to present about this topic for an assignment.

@dontstopn0w 3 жыл бұрын

GANDA NITO!

@faimulahsan3413 5 жыл бұрын

Magnificent man. You are awesome.

@rahuldhardubey1898 3 жыл бұрын

Well Explain Sir Thanks

@soundous9667 3 жыл бұрын

Thank you for the arabic sub ❤️ this video really help me for my homework

@kofikoranteng1447 3 жыл бұрын

What an amazing explanation!

@denak05 4 жыл бұрын

If the professors would be this clear to explain theories, the university would be better place to visit

@stefanspinu8784 7 жыл бұрын

lovely! really cool video!

@herbwitgames2611 7 жыл бұрын

I do a level economics and i cry about the state of the uk's econimical factorial equivalent of Asian workers

@mariovallanzasca9454 5 жыл бұрын

Good video! I have a question, how do you write Y? what numbers do you have to put?

@Home_Tution_Coaching 5 жыл бұрын

Keep it up sir

@nehagupta1007 2 жыл бұрын

This was so good...you actually explained a hard theory in simple way Thank you 😊

@user-yu7cq1vi8v 3 ай бұрын

Amazing bro

@mimamsa5557 2 жыл бұрын

Hello!! Thanks for the video It's great.

@mohaimenulimam233 2 жыл бұрын

Tomorrow is my exam. May God bless this content creator!

@MarginalRevolutionUniversity 2 жыл бұрын

Best of luck!

@p.1127 4 жыл бұрын

best explanation

@sanmartintierradetradicion3748 3 жыл бұрын

Great video, thanks

@ayaansaeed2077 7 жыл бұрын

Hi, can you please explain why (M×V) is NGDP formula. Thanks in advance.

@academia5618 Жыл бұрын

Super explanation

@Slime5276 6 жыл бұрын

Thank you so much!

@elinadiary9357 8 ай бұрын

This is awsom

@blanka7647 3 жыл бұрын

This video is amazing

@Miascorpion 2 жыл бұрын

I am ur fan 😍 thank you that’s awesome 👏

@rahatullah9042 5 жыл бұрын

thanks its amazing

@pettergustafsson121 6 жыл бұрын

How is Y Real GDP? Usually you use the price levels of 2009 in order to get real GDP. In this video they are refering real GDP as the value of all products and services in a year, which is technically just nominell GDP? Can someone explain please? But good video I must say!

@awaisafridiyt7736 5 жыл бұрын

Awesome presentation but still was difficulty to memories and differentiate between values of variables

@AloTecnologia 3 ай бұрын

Existe um lapso de tradução ( a tradução some durante o vídeo) neste vídeo para o idioma "Português Brasil" - mais o(s) mesmos trecho(s) estão normais em "Espanhol". Isto acontece em muitos vídeos do curso de Macroeconomia da MRU oferecido pela ENAP aos servidores públicos federais no Brasil.

@kmh6578 Жыл бұрын

Do you have explanations on AD curve and the IS/LM curves. How they are generated

@etodajoseph 2 жыл бұрын

hi there, can i know what software you use to make these video clips, please?

@theabhishekmittal Жыл бұрын

sir which software ddo you use for making the animations and video

@Finition1999 5 жыл бұрын

Thank you guys

@kangnochanel6173 3 жыл бұрын

Hello vidios goods love❤️❤️❤️❤️❤️from Indonesia👍🏾👍🏾👍🏾👍🏾👍🏾

@tharindudasanayaka8513 3 жыл бұрын

Great

@mariyashaji9734 3 жыл бұрын

Sir I have one doubt. Is this Y represents the total amount of goods and services exchanged for money or transactions performed?

@wenboyali6320 4 жыл бұрын

Dear professor, could you please explain why "Y is all the finished goods and services sold in an economy, so Y is real GDP." AND Y is the quantity OR market value of all the finished goods and services sold ? I can't figure out why Y times the average price level is the nominal GDP. looking for your reply, thanks !

@huaweihuang9902 4 жыл бұрын

Same confusion

@priyeshsrivastava8025 3 жыл бұрын

@@huaweihuang9902 The equation is slightly wrong/simplified. Here summation(y_i) for all products i is the real GDP i.e. Y And summation(p_i*y_i) for all products i is the real GDP i.e. P since there is only 1 i in this case, P*Y = nominal GDP and Y = real GDP.

@PapamileIsyagi 3 жыл бұрын

@@priyeshsrivastava8025 could you please explain this in another way

@nameisrango 2 жыл бұрын

@@PapamileIsyagi real GDP is the total "goods and services , their quantity not prices; which is represented by Y" whereas Nominal GDP is the "total amount (monetary) of the goods and services at their respective prices" So, for total amount of goods and services, we have to multiply quantity of each goods and services with its current price i.e. Y (quantity of goods) x P (current price of goods) Hence, in formula : YxP=Nominal GDP And if you take base price instead of current price, you get Real GDP's value in monetary terms i.e. Y(quantity of goods)×P(base price)= Real GDP

@m1rrorm1nd43 2 жыл бұрын

because it's a fiat garbage equation

@b_vtt8726 4 жыл бұрын

i dont understand that. if the horse is traded more than one time the velocity goes up but the amount of goods and services stay the same. if they don't then you could just exchange y and v for they would be the same. and since the amount of money spent and the accumulated prices of all goods and services is also the same I don't see how this equation tells us anything new. it just reformulates m by using p and v by using y. do I miss something?

@Youbeentagged 3 жыл бұрын

What I'm about to type confuses me. M and V have a proportionate relationship, if there's more money in an economy, you'd expect more velocity. But on the other hand, P and Y have an inverse relationship. If goods cost more, you're less likely to buy it.

@namastehrx007 3 жыл бұрын

Make video on Cambridge cash balance approach please..

@sarthakarora481 7 жыл бұрын

learning is fun

@omtiwaskar2640 Жыл бұрын

GREAT

@abdulahadshabbir2618 7 жыл бұрын

With reference to (almost) 2:44...do credit cards really count as money? n how do they affect the currency printing process...they do accelerate the spendings and thus GDP, is there effect also considered when printing hard cash?

@katec4615 6 жыл бұрын

Credit cards don't count towards the money supply, however the money borrowed on credit from the bank (credit) will count toward the sale of final goods and services, which in turn affects the value of GDP (Y). Debitable/checkable accounts do count as money (M). The reason for this is because the money in your checkings/savings account can be converted back to actual physical currency at any point, whereas credit is where the whoever the credit card is through (usually a bank) has paid for the goods and services but with the promise you will eventually pay them back with real money, also generally with interest, as there would be no incentive to loan you money without receiving some type of return.

@therealnoodles7638 6 жыл бұрын

Credit card is not money. It is a borrowed promissory note that a bank is willing to put on its balance sheet. The asset of the credit card user increases, the liabilities of the card issuer increases too. Printing hard cash has a purpose. To complete transactions.

@prasannadhital1682 7 жыл бұрын

sir iam preparing for examination of Nepal Rastra Bank.Its a Central reserve bank of Nepal and i believe your videos will help me a lot .

@2late4coffee 4 жыл бұрын

prasanna dhital Did u pass the exam, what happened ? I look forward to your answer

@ThePeterDislikeShow 3 жыл бұрын

What happens if the dollar goes to a foreign country and gets exchanged a few times at airports, do those count?

@jirensama1622 3 жыл бұрын

Omggg thank u soo muchhhhhhh i love u

@kshanepaswett261 4 жыл бұрын

How do we measure the stuff we sell?

@AMANDeep-uk5ki 6 жыл бұрын

Thamk you

@monicalinares9636 4 жыл бұрын

Pupusas!!! 🇸🇻🇸🇻🇸🇻💙

@storyhouse250 4 жыл бұрын

U made it so damn easy

@noobmaster-gos 3 жыл бұрын

Is the letter Y stands for Yield?

@shubhamjain2423 6 жыл бұрын

Best

@swapneelrao8276 4 жыл бұрын

Can anyone help me out here - if MV = PY, in that case, money supply is inversely proportional to velocity of money that is changing hands. How is that possible? If money supply increases, velocity has to increase!

@asawirgull1914 2 жыл бұрын

beautiful

@SaraGarcia-hc1yc 4 жыл бұрын

Where did Tyler get a dollar pupusa! Tyler must have been in LA.

@inuken9561 2 жыл бұрын

Always watch KZfaq clips before lecture

@jesse5331 2 жыл бұрын

Pupusas are so good 😁😋

@mahmoudnor1446 3 жыл бұрын

You top

@PrinceKumar-hh6yn Жыл бұрын

Is Macro economics all about M X P Y

@leoware9752 7 жыл бұрын

I am a little bit confused. Is Y supposed to be number of items sold? In the video, I think they said that it is equal to "Real GDP" as opposed to "Nominal GDP". What does this even mean?

@MarginalRevolutionUniversity 7 жыл бұрын

Hi Leo, I recommend heading on over to the beginning of the Macro course. We define GDP and explain the difference between nominal and real GDP in the first four videos. Here's a link to the playlist: kzfaq.info/get/bejne/o9B6oNJm0rSZqXU.html&list=PL-uRhZ_p-BM52EbMG1NR1ZfG9tEvcxE4u Hope that clears it up! -Meg

@leoware9752 7 жыл бұрын

Okay, thanks.

@katec4615 6 жыл бұрын

Y = Real GDP P x Y = Price index times real GDP Remember that to find nominal GDP you multiply real GDP (Y) by the price index or price level (P) which is the formula P x Y. This is why the formlula M x V is identically the same as the nominal GDP.

@gpscaspirant3999 2 жыл бұрын

cool 101 !!!

@jonahsmith2282 7 жыл бұрын

What would Ludwig Von Mises say about this? I thought money was simply a medium of exchange which took the inconvenience of not finding someone willing to trade their goods for your goods out of direct bartering. I don't know why the velocity of money would matter to the health of an economy or to the gross domestic product. It's production and trade that show overall economic health, right? I never could make sense of the Keynesian economic rationale and fiat currency. If you need to use force to get people to use your currency what does that say about its actual value?

@adrianomattia5625 7 жыл бұрын

Jonah Smith check out what aggregate demand is and its importance. economy is just like a coin, it has two sides: supply and demand. Both matter.

@adrianomattia5625 6 жыл бұрын

TheRealNoodles Insulting a school you know nothing about just because some random guy on the internet wrote a question asking for explanations. Seems legit.

@adrianomattia5625 5 жыл бұрын

john smith No, i'm not against that. If l'm the owner of the road i can set rules that you have to accept if you want to use it. That's not what force is.

@adrianomattia5625 5 жыл бұрын

john smith and i'm not claiming that i am...

@sundarindia7867 Жыл бұрын

Sir one question . What happens to quality theory of money if it's a digital dollar bill

@quakewakey Жыл бұрын

I'd assume that since M = All the money in an economy, then it'd have to include digital money as well. On the other side of the equal sign, the goods and services bought by the digital money is accounted for in Y = the real GDP, leading for the equation to still be an identity. I could be wrong though, so someone please do correct me if that is the case! :) EDIT: I found this helpful comment from kate c that corrects and answers your question! :D "Credit cards don't count towards the money supply, however the money borrowed on credit from the bank (credit) will count toward the sale of final goods and services, which in turn affects the value of GDP (Y). Debitable/checkable accounts do count as money (M). The reason for this is because the money in your checkings/savings account can be converted back to actual physical currency at any point, whereas credit is where the whoever the credit card is through (usually a bank) has paid for the goods and services but with the promise you will eventually pay them back with real money, also generally with interest, as there would be no incentive to loan you money without receiving some type of return." TL;DR, credit cards do not count toward the money supply (M), but money borrowed on credit will since it can be converted to actual physical currency. that in turn affects the value of Y.

@sundarindia7867 Жыл бұрын

@@quakewakey thanks for the eloborate reply . After reading your reply I feel at one point , ppl will say with digital dollar or digital rupees we don't need the bank or we all need only one bank . Becoz All the money will be present with one entity that is the FED / Central bank . Hence in absence of physical currency even tax payments won't need IRS govt can just deduct the amount.

@quakewakey Жыл бұрын

@@sundarindia7867 it's an interesting subject. i am swedish myself, and we are one of the most "cashless" societies in the world with about 1% of all the money in flow being actual cash.

@yvramanarajitha3978 3 жыл бұрын

Shabhash

@user-cx2ex4kw2n 6 ай бұрын

where is different of mv=py and mv=pq?

@khadijaakter5135 5 жыл бұрын

Why Y is considering as Real GDP?

@dollaphat7338 3 жыл бұрын

Here from EGCC

@Mugen-44 Жыл бұрын

funny how this formula has 3 versions

@TheGerogero 7 жыл бұрын

I want a pupusa. :F

@marifkhan7054 Жыл бұрын

you mean M= $3. but money supply is actually $1. how is it?

@maxteitelbaum5388 6 жыл бұрын

I don't understand why money times velocity is equal to nominal gdp. Anyone could explain me this?

@katec4615 6 жыл бұрын

M x V = P x Y P x Y = Nominal GDP Therefore, M x V = P x Y = Nominal GDP Remember that to find nominal GDP you multiply real GDP (Y) by the price index or price level (P) which is the formula P x Y. Since the formula M x V is identically the same as the formula P x Y this is why money times velocity equals nominal GDP. The amount of money in circulation (M) times the number of times each dollar is spent (V) is equal to nominal GDP because velocity (V) is the number of times each dollar is spent on *final goods and services* . Remember that's how we define nominal GDP - the total value of all sales of final goods and services before adjusting for inflation. Total money times the amount of times the money is spent on final goods equals the total value of sales of goods and services. For example, if there are 10 dollars in circulation (M=10) and each dollar is spent 5 times (V=5), 10 x 5 = 50. So the total amount of money spent on final goods and services would be $50 which would be the nominal GDP - the total value of the sale of all final goods and services before adjusting for inflation.

@amitkumar2998 5 жыл бұрын

@@katec4615 what they taught earlier was M X V..but now they are using M + V..how is it possible? please explain

@biyahengpoolitss8108 5 жыл бұрын

+Amit Kumar M xV

@saumyamishra3121 4 жыл бұрын

Sir I can't understand ur English plz show it below the video so that I can understand by seeing it..

@Azazin187 Жыл бұрын

The quantity of money is not really affecting inflation. Friedman and his Monetarism (Neo-Quantity theory of money) failed miserably in the 1980s. Nowadays, no Central Bank is applying this theory in practice.

@Len_J_ 4 ай бұрын

You must be joking. If you print more money you will get inflation. This equation is a simple way of proving that fact.

@Azazin187 4 ай бұрын

@@Len_J_ No joke. This monetarist view was popular in the 1970s & 80s, but central banks realized that monetary targeting was not working at all and there are other, more important, factors causing inflation (like positive and negative demand or supply shocks, supply chain disruption, higher taxes, devaluation etc.). As for the equation, read the book by Basil Moore: Horizontalists and Verticalists. And try to learn about the endogenous theory of money. For example, in Post-Keynesian economics: "The level of prices is not determined by the level of the money supply and neither is the rate of inflation determined by the growth rate of money supply. Therefore, post-Keynesians do not regard inflation as being a monetary phenomenon. Instead, inflation is regarded as the outcome of unresolved distributional conflict."

@Len_J_ 4 ай бұрын

@@Azazin187 said all leftists. Our currency is fiat. And that is that. It is inflationary by design. Gold standard is long gone. Your house will be worth 2 X what it is when you retire. Your loaf of bread double. Your milk double. Your purchasing power will be half of what it is now. It's called printing money. Leading to rising prices of everything and rising debt clocks compared to years ago. It is a fractional reserve system. A ponzi scheme. Banks are not printing money? They create credit on demand. Same thing. Print money = get inflation.

@zacherybishop7710 4 жыл бұрын

So going off of this, why are banks allowed to lend more than they have in reserves? Wouldn't that lead to inflation? Also, why is velocity so ignored in this equation? That is literally the demand of the consumers rising and falling and thus the amount of money in actual use in the economy. Simply having more money in the economy shouldn't matter if it is saved and not spent. Also, in later videos, you claim that inflation comes when money is spent at higher volumes even as the supply of the product is increased. This should not change the equilibrium price of the products and cause inflation. Instead, this should represent growth. This equation seems unnecessary in explaining the economy, especially inflation as you all have explained it.

@hatime.y8025 5 жыл бұрын

يا جماعه وش الهرجه ؟

@therealnoodles7638 6 жыл бұрын

Quantity theory of money is outdated. Doesn't work like that in the real world. I use to work in a bank. What they taught me in university was useless because i saw the real banking. Not the theory banking.

@therealnoodles7638 6 жыл бұрын

freddo 1614 qtm is still wrong though with or without "banking" models

@therealnoodles7638 6 жыл бұрын

freddo 1614 qtm implies central bank controls the money supply (M). Exogenously given, helicopter money. In reality they don't and they can't. They tried but they failed. Paul Volcker Experiment. Y is always at full employment level, meaning supply is constant. With demand increasing, price rise. In reality the economy is rarely at full employment level, almost impossible to reach. And when demand increases, output increase too because businesses take advantage of the increase in demand. That's how production work in reality. And this ignores demand for money. Money supply is driven by demand for money. Not driven by the central bank. It is endogenous, not exogenous. You may think Quantitative easing will work but they don't. If you believe in QTM it will in your own theory world but reality tells a different story.

@therealnoodles7638 6 жыл бұрын

freddo 1614 they can feed tons of reserves to banks but that won't make them increase lending. Bank reserves are not "money". It is banks that control the money supply, mostly. With their credit creation.

@therealnoodles7638 6 жыл бұрын

freddo 1614 ok the mistake you obviously did is treating bank reserve as notes and coins. Zimbabwe printed notes and coins. But modern sophisticated central banks use bank reserves and cash reserves. Bank reserves does not enter the money supply, it is not money used by you and me. Only cash reserves do. And Zimbabwe killed most of its producers, or kicked out and war just finished. They ran out of basic necessities so prices rose. So if their government keeps printing for stupid purposes then yes it's gonna cause inflation. The government, not the central bank.

@therealnoodles7638 6 жыл бұрын

freddo 1614 like i said, QTM doesn't represent the real world. Too basic for the complexities of banking and finance

@Jesse-zp8lh 7 жыл бұрын

Read up. Quantity theory of money does not work in reality.

@andrestifyable 7 жыл бұрын

Ugh, so annoying I have to wait to see the next video. I have already seen all of the videos on this channel ahahaha

@MarginalRevolutionUniversity 7 жыл бұрын

Andre! We're working hard to keep the tap flowing. Have you seen all of Micro? Everyday? Money Skills? Econ Duel? Thanks for watching. -Roman

@andrestifyable 7 жыл бұрын

Well, it was quite a hyperbole from me hahaha But I can say I've spent some hours in econo-marathons here on your channel. Thanks for your videos, they are really interesting!

@andrestifyable 7 жыл бұрын

by the way, I LOVED Econ Duel!

@MarginalRevolutionUniversity 7 жыл бұрын

Great to hear. Any topics you'd like to see us cover? -Roman

@kingsolomon3332 7 жыл бұрын

Thanks, love you guys. Keep up the awesome job! I always watch your new videos.