PIONEER

M.Com 1st sem

 MONEY
AND THEORIES OF MONEY
PIONEER GROUP MEMBERS
PRAMOD
SOUMYA
SUPREETHA
SHASHIKALA
SHRINATH
SUNIL
SWETHA PRAKASH
SHWETHA N
POORNIMA AILI
SOUJANYA
 CONTENTS

Meaning of money
Characteristics of money
Fishers Quantitative theory of money
Meaning
Assumptions
Equations
Conclusion and criticisms

Friedmans theory of money

Meaning
Assumptions
Equations
Criticisms and conclusion
 CONCEPTS OF MONEY
MONEY

WHAT IS MONEY?
 MONEY
Anything which is used as a medium of exchange , store of
value and standard of differed payment is called as money.
Old forms of money
Money and credit
Modern forms of money
Reserve bank of India
 QUANLITIES(CHARACTERSTICS) OF
MONEY

Portability.
Durability.
Divisibility.
Uniformity.
Limited supply.
Acceptability.
Convenient.
Consistency.
Possess value in itself.
Relative scarcity.
 THEORIES OF MONEY

Types of theories of money

Fishers Quantitative theory of money

Friedmans theory of money
Fishers theory of money
Keynes theory of money
 FISHERS QUANTITATIVE THEORY OF
MONEY

DEFINITION:
others things remaining unchanged as the
quantity of money in circulation increases, the
price level also increases in direct proportion
and the value of money decreases and vice-
versa
 EUATION OF FISHERS QTM
PT=MV+MV
Where :
P= price level, or 1 IP = the value of money.
M=The total quantity of legal trends of money;
V= The velocity of circulation of M;
M= The total quantity of credit money;
V= The velocity of circular of M;
T= The total amount of goods and services
exchanged for money or transactions
performed by money.
 Assumptions of fishers QTM
P is passive factor.
M remains constant.
V and V are constant and independent.
T also remains constant.
Demand for money is proportional to the value of
transactions.
Supply of money is an exogenously determined constant.
The theory is applicable in the long run.
Based on the assumption of the existing of full
employment in the economy.
 CRITICISMS OF FISHERS QTM:
Truism.
Other things not equal.
Constant relate to different time.
Fails to measure value of money
Weak theory.
Neglects interest rate.
Unrealistic assumptions.

conclusion
 QUANTITATIVE THEORY OF MONEY
Concepts of QTM
 The quantitative theory of money
MV = PQ
M= The money stock
V= The velocity / speed of circulation (the
number of times a unit of currency e.g., $10
notes is used in a given period of times to buy
G&Ss)
P=The general price level
Q=Total output (GDP)
 The crude QMS
Suggest that both V (speed of circulation) and Q
(output of goods and services) are constant.

Therefore M (the money stock) is proportional to

P (general price level).
which implies that the general price level
will rise with an increase in money stock, and
fall with a decrease in the money stock.
 Examples of crude QTM
If the money supply is increased by 15%
(remembering level of GDP assumed to be
fixed), this will mean that there is MORE money
in circulation chasing the same quantity of
goods. This is turn bids up prices as the
purchasing power of each dollar falls.

The end result will be a proportional increase in

the price level, i.e., 15% increase in P.
 STATEMENT

other things remaining constant,

the general price level in an
economy moves in direct
proportion to the changes in
supply of money
 ASSUMPTIONS
Changes in short run.
Full employment.
Velocity.
Barter trade remain constant.
M,V and T must change independently.
All stock of money is meant for purchasing.
 conclusion
Hence concluded that in the short run, the
general price level in an economy is exactly
proportional to the quantity of money
circulated in the economy. Provided the
velocity of circulation of money and volume of
transaction remains constant ,i.e., a 10%
increase in level and so on. This is a classical
approach to rise in prices.
Friedman's theory of money
 INTRODUCTION

MEANING
 Primary functions of Friedman's
theory of money

Total wealth.
The division of wealth between human and
non-human forms.
The expected rates of returns on money and
other assets.
Other variables.
CRITICISMS AND CONCLUSIONS
VEDIO
VEDIO
VEDIO
 THANK YOU

PIONEER GROUP
M.Com 1st sem