Traditional Culture Encyclopedia - Traditional culture - Modern monetary quantity theory
Modern monetary quantity theory
The economic significance of the money demand function is that the money demand of a single wealth holder depends on three factors:
(1) The total wealth or total income of the wealth holder, that is, Y and W;
(2) the price and income of various forms of wealth, namely rm, rb, re, (1/p) (DP/dt);
③ The preference of wealth holders is U-shaped. ..
Friedman believes that if M, Y and W are regarded as the amount of money held per capita, the actual income per capita and the property income per capita respectively, this money demand function formula can be applied to the whole society.
Friedman put forward such a money demand function to show that:
① There is a very stable relationship between money demand and its determinants;
② Money demand is independent of money supply, that is, the factors affecting money demand have nothing to do with money supply, so it is necessary to establish a money supply function to improve money analysis.
According to Friedman, because the function of money demand is extremely stable, the change of price depends on the supply of money. It is the characteristic of money quantity theory to study the influence of the change of money supply on prices. Moreover, the change of money supply also affects output and nominal income, but there is a time interval between the growth of money quantity and the growth of nominal income, because nominal income is a comprehensive index, which includes price and output. The growth of money supply affects the output first, and then the price. This is different from the early money quantity theory, which assumes full employment, that is, the output remains unchanged.
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