QUANTITY THEORY OF MONEY

DEFINITION

1) The quantity theory of money is the idea that the supply of money in an economy determines the
level of prices and changes in the money supply result in proportional changes in prices.

2) In other words, the quantity theory of money states that a given percentage change in the money

supply results in an equivalent level of inflation or deflation.

EQUATION

This concept is usually introduced via an equation relating money and prices to other economic
variables, as

shown by the following setup:

MV = PT or MV = PY

Where,

M represents the amount of money available in an economy (i.e. the money supply)

V is the velocity of money, which is how many times within a given period, on average, a unit of

currency gets exchanged for goods and services

P is the overall price level in an economy

Y is the level of real output in an economy (usually referred to as real GDP)

T is the volume of trade transactions

QUANTITY EQUATION GROWTH RATE FORM

% change in ( M*V ) = % Change in ( P*Y)

(% change in M )*( % change in V) = ( % change in P)* ( % change in Y )

The quantity equation can also be written in growth rates form, as shown above. Not surprisingly, the
growth rates form of the quantity equation relates changes in the amount of money available in an
economy and changes in the velocity of money to changes in the price level and changes in output.

Historical evidence shows that the velocity of money is pretty constant over time, so it's reasonable to
believe that changes in the velocity of money are in fact equal to zero.

So, we put % change in V=0

So, we obtain, Mg= ( % change in P * % change in Y )

Most economists agree that, in the long run, the level of goods and services produced in an economy
depends primarily on the factors of production (labor, capital, etc.) available and the level of technology
present rather than the amount of currency circulating, which implies that the money supply cannot
affect the real level of output in the long run.
So, we put % change in Y= 0

So, we obtain. (Mg= % change in P )

EXTENSION OF FISHERS QUANTITY THEORY OF MONEY MV = PT

1) Fishers stated P = MV/T, which implies that the quantity of money (M) determines the prices level (P),

assuming T and V to be constant. In this equation of exchange, however, only primary money or

currency money is conceived. But in the modern economy, money includes not only notes and coins,

but also demand deposits of banks or credit money.

Thus, the fundamental thesis which Prof. Fisher seeks to establish by the equation of exchange is that
the price level or the value of money is a function of the quantity of money only.

Tags

Marketing promotion usually involves delivering the products and services to the end users. There are
several tools which are used for the promotion of products and services. These can be either paid or not
paid depending upon the kind of product being marketed.

Traditional Marketing Promotional Tools

Mass Media is one of the popular tool used for international business marketing. These traditional
media usually can be newspapers, magazines, television or radio. Public display boards used as roads
and vehicles can also be used as traditional media for marketing. For each kind of business, one of the
traditional media will be suitable.

Digital Marketing Promotional Tools

As far as international marketing is concerned digital marketing is one of the best methods. Some of the
companies use email marketing as one of the primary channels for marketing of products in the
international market. Through Social Media Platforms like Facebook can be used extensively for
promoting to targeted customers. Digital marketing also allows the use of round the clock contacting
option and brand visibility.

Public Relations for Promotions

Promotions did in the form of Press Releases, Newsletters, Press Conferences, and News reports are
regarded as Public Relation Tools. These are generally done to promote branded products which get
more exposure through brand mentions. It is possible to network with public relation departments of
newspapers and advertising agencies for promotions.

Event Promotion Activities

Some of the business are using events and exhibitions for business promotions. Through events and
public expo, it is possible to market the products directly to people coming for the events. Local trade
fairs and non-profit events also give opportunities and support given with branded advertising at the
event venue is also good.

Q3)

Market Segmentation is concerned with dividing the total heterogeneous population into smaller
homogeneous groups of customers who share similar needs and wants.

A market segment is a subset of the market which consists of individuals or organizations which have
similar needs and demand similar products and services due to their specific Geographic, demographic,
psychographic, behavioral or socio-cultural characteristics.

(1) Geographic Segmentation –

Many companies operate only in a particular area because people behave differently in different
areas due to various reasons such as climate, culture, etc.
 Region – North, South, East, West
 Population density – Metropolitan areas, small cities, villages, towns
 Type of Area – Urban, suburban, exurban, rural
 Climate – Cold, hot, humid
(2) Demographic Segmentation –
Market is classified on the basis of population from census data for e.g. variation of
consumption behavior between males & females for segmentation for products like clothes,
cosmetics, motor vehicle, etc.
 Age and Life cycle stages – Baby, teenager, bachelor, parent, grandparent
 Gender – Male, Female
 Marital Status – Single, married, divorced, living together, widowed
 Income – Lower, middle, upper
 Education – High school, graduate, post-graduate
 Occupation – Salaried worker, businessmen, professionals

(3) Psychological/Psycho-graphic Segmentation –

Most consumers are influenced by personality traits.
 Needs – Shelter, safety, security, love, self-esteem, self-actualization
 Personality – Extrovert, introvert, aggressive, compliant
 Perception – Safe players, moderate risk takers, high risk takers
 Learning- Low involvement, high involvement
  Attitudes – Positive attitude, negative attitude
 Lifestyle – Achievers, Strugglers, Strivers, Makers
(4) Socio-cultural Segmentation –
Socio-cultures influences the consumer’s behavior. Eg: Before making purchases, a bachelor
may consult his friends, a boy may ask his parents & a married man asks his wife.
 Culture – Indian, American, Japanese, Chinese, Mexican
 Subculture – Shia and Sunni, Brahmin and Kshatriya
 Religion – Hinduism, Islam, Sikhism, Christianity
 Social Class – Lower class, middle class, upper-middle class, upper class
 Family Role – Buyer, Initiator, User, Disposer
 Lifecycle Stage – Bachelors, young marrieds, empty nesters
(5) Behavioral Segmentation –
 Occasions: Sellers can easily find out certain occasions when people buy a particular product.
Eg: birthdays, marriages, festivals, national events, holidays
 Benefits: Each consumer expects to fulfill certain desire or to derive some benefits from the
product he purchases.
Eg: Convenience, prestige, economy, value-for-the money, Quality, specialty
 Attitude: On the basis of attitude of consumers, markets may be classified as enthusiastic
market, indifferent market, positive market, & negative market.

constraints in Rural Marketing (Nov. 06) *(May 06)

1. Transport Problem: Transportation infrastructure is very poor in rural India. Many villages remain
outside the railway network. Many villages have only kaccha roads while many of rural interiors
are totally unconnected by roads. Because of this the physical distribution is difficult in rural areas.
2. Deprived People and Markets: The number of people below the poverty line has not decreased
in any appreciable manner. Thus, poor people and consequently underdeveloped markets
characterize rural markets. A vast majority of rural people is tradition bound, and they also face
problems such as inconsistent electrical power, scarce infrastructure and unreliable telephone
system, and politico-business associations that hinder development efforts.
3. Warehousing Problems: A storage function is necessary because there is a time gap between
production and consumption of commodities. Agricultural commodities are produced seasonally
but they are demanded over the year so there is need to store them. But in rural areas, there is
lack of public as well as private warehousing.
4. Communication Problems: Communication infrastructure consisting of posts, telegraphs and
telephones is inadequate.
5. Dispersed markets: Rural population is scattered over a large land area. And it is almost
impos-sible to ensure the availability of a brand all over the country. Advertising in such a highly
heterogeneous market is also very expensive.
 6. Many Languages and Dialects: The number of language and dialects vary widely from state to
state, region to region and even from district to district. Though the recognized languages are
only 16 the number of dialects is around 850.
7. Market Organization & Staff: Rural marketing needs large marketing organization and staff to
have an effective control, which requires huge investment. Sales force finds it difficult to adjust to
the rural environment and inadequate facilities available in rural areas.
8. Distribution problem: Effective distribution requires village-level shopkeeper, toluka-level
wholesaler/dealer, district-level stockiest/distributor, and company-owned depot at state level. These
many tiers increase the cost of distribution.
9. Hierarchy of Market: Rural consumers have identified market places for different items of their
requirements. Thus depending upon the purchase habit of rural people, the distribution network
of different commodities has to be different.
10. Seasonal Demand: Seasonal demand is main problem of rural market. Agriculture situation plays
a significant role in the demand of commodities in the rural market because it is the main source
of income. Again agriculture depends on monsoon so buying capacity of rural consumers varies.

CHALLENGES

The peculiarities of rural markets and rural consumers pose

challenges to marketers in reaching them effectively. There

are a large number of small villages which are not easily

accessible because of all weather roads. The main

challenges of rural marketing are discussed below:

Transportation Problems

Transportation is essential for movement of products from

urban production centers to remote villages. In rural India

transportation facilities are quite poor. Nearly 80

percentages of villages in the country are not connected

bywell constructed roads. Many parts of India have kuccha

roads. Due to poor transportation facilities it is not possible

for a marketer to access the rural market.

Warehousing Problems
A storage function is necessary because there is a time gap

between production and consumption of commodities.

Agricultural commodities are produced seasonally but they

are demanded over the year so there is need to store them.

But in rural areas, there is lack of public as well as private

Arshi Talwar, IJECS Volume 3 Issue 12 December, 2014 Page No.9404-9407 Page 9407

warehousing. Marketers face problems of storage of their

goods.

Underdeveloped People And Underdeveloped

Markets

Rural society in India is underdeveloped. Modern

technology has tried to develop the people and markets in

rural areas. But the technology has made very less impact in

rural areas.

Inadequate Media Coverage

Media have lots of problem in rural areas. Television is a

good source to communicate the message to rural people.

But due to non availability of power as well as television

sets, majority of rural population cannot get the benefits of

various media.

Many Languages

India is a country of many languages. Language becomes

barrier in effective communication in the market efforts. The

number of languages vary from state to state, region to

region and district to district, etc.

Low Level Of Literacy

The literacy rate is low in rural areas as compared to urban

areas. Marketers face communication problem due to the

lack of literacy rate. Print medium is not much effective and

it is irrelevant since its reach is poor. So, low level of

literacy becomes challenge for marketers in rural areas.

Seasonal Demand

Seasonal demand is main problem of rural market.

Agriculture situation plays a significant role in the demand

of commodities in the rural market because it is the main

source of income. Again agriculture depends on monsoon so

buying capacity of rural consumers varies. Despite this,

many rural areas are not connected by rail transport. Kuccha

roads become unserviceable during monsoon.

mportance of Advertising

Advertising plays a very important role in today’s age of competition. Advertising is one thing which has
become a necessity for everybody in today’s day to day life, be it the producer, the traders, or the
customer. Advertising is an important part. Lets have a look on how and where is advertising important:

Advertising is important for the customers

Just imagine television or a newspaper or a radio channel without an advertisement! No, no one can any
day imagine this. Advertising plays a very important role in customers life. Customers are the people
who buy the product only after they are made aware of the products available in the market. If the
product is not advertised, no customer will come to know what products are available and will not buy
the product even if the product was for their benefit. One more thing is that advertising helps people
find the best products for themselves, their kids, and their family. When they come to know about the
range of products, they are able to compare the products and buy so that they get what they desire
after spending their valuable money. Thus, advertising is important for the customers.

Advertising is important for the seller and companies producing the products

Yes, advertising plays very important role for the producers and the sellers of the products, because

Advertising helps increasing sales

Advertising helps producers or the companies to know their competitors and plan accordingly to meet
up the level of competition.

If any company wants to introduce or launch a new product in the market, advertising will make a
ground for the product. Advertising helps making people aware of the new product so that the
consumers come and try the product.

Advertising helps creating goodwill for the company and gains customer loyalty after reaching a mature
age.

The demand for the product keeps on coming with the help of advertising and demand and supply
become a never ending process.

Advertising is important for the society

Advertising helps educating people. There are some social issues also which advertising deals with like
child labour, liquor consumption, girl child killing, smoking, family planning education, etc. thus,
advertising plays a very important role in society.

Q1 v

Direct marketing is the use of consumer direct channels to reach & deliver goods & services to
customers without using marketing middleman. These channels include direct mail, catalogs,
telemarketing, interactive TV, Kiosk ‘s, website, & mobile devices.

Characteristics: –

(a) Deals with customers directly.

(b) It is interactive marketing.

(c) It does not involve marketing channels / stores.

(d) It does not involve advertising / mass promotion.

(e) Delivers near perfect solution to customers problem.

(f) Helps achieve excellence in product & services.

(g) Facilitates sharper segmentation & targeting.

(h) Facilitates relations building.

i) Cost effective.

Forms of Direct Marketing:

(1) Mail Order Marketing / Catalogue Marketing

(2) Direct Mail Marketing

(3) Direct Response Marketing

(4) Database Marketing

(5) Telemarketing

(6) Television

(7) Online Marketing