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Quantity Theory of Money:
Double the quantity of money and other things remaining the same prices will be twice and the value of money one half. Half the quantity of money prices will be one half and the value of money doubles.This theory also assumes that the quantity of money is directly related to goods and services offered for sale over a given period of time and the supply of goods and services remains fixed.
Assumptions:
Constant Velocity of Circulation of Money:
Velocity of Circulation means that one unit of money how many times passes in different hands. According to this theory it has been assumed that velocity of circulation of money remains constant. There is no change in it.No Change in the Volume of Transaction:It has been assumed that total goods and services quantity remains constant.
No Change in Direct Exchange:There should be no change in the volume of direct exchange.No Change in the Hidden Money:There should no change in the quantity of hidden money otherwise this theory will not be applicable.No Change in Credit Money:
It has been also assumed that credit money in circulation will remain constant.
Double the quantity of money and other things remaining the same prices will be twice and the value of money one half. Half the quantity of money prices will be one half and the value of money doubles.This theory also assumes that the quantity of money is directly related to goods and services offered for sale over a given period of time and the supply of goods and services remains fixed.
Assumptions:
Constant Velocity of Circulation of Money:
Velocity of Circulation means that one unit of money how many times passes in different hands. According to this theory it has been assumed that velocity of circulation of money remains constant. There is no change in it.No Change in the Volume of Transaction:It has been assumed that total goods and services quantity remains constant.
No Change in Direct Exchange:There should be no change in the volume of direct exchange.No Change in the Hidden Money:There should no change in the quantity of hidden money otherwise this theory will not be applicable.No Change in Credit Money:
It has been also assumed that credit money in circulation will remain constant.
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