The expression of Cambridge equation is

The expression of Cambridge equation is: Md=kPY.

Cambridge equation is one of the equations of traditional money quantity theory. The Cambridge School, represented by Marshall and Pigou, pays attention to the behavior of micro-subjects when studying the problem of money demand. This argument holds that the individual's demand for money in an economic system is essentially a question of how to choose to maintain its assets.

There are many factors that determine how much money people hold, such as personal wealth level, changes in interest rates and the possible convenience of holding money. However, other things being equal, there is always a relatively stable proportional relationship between nominal money demand and nominal income level for everyone.

definition

Cambridge equation is a kind of money demand function put forward by A.C. Pigou, a representative of Cambridge School in England. Also known as the cash balance equation.

main distinction

Main differences between Cambridge equation and transaction equation;

① The trading equation attaches importance to the role of money as a means of trading and emphasizes the expenditure of money; The Cambridge Equation attaches importance to the function of money as an asset and emphasizes the holding of money.

(2) The transaction equation attaches importance to the speed of money circulation, economic and social system factors; On the other hand, the Cambridge equation attaches importance to people's motivation to hold money.

(3) The amount of money referred to in the transaction equation is the amount of money circulating in a certain period of time; The amount of money referred to in the Cambridge equation is the stock of money held by people at a certain point in time.

Terminology explanation

Money demand function refers to the corresponding relationship between money demand and variables that affect its change. By choosing the main variables that affect the money demand and assuming the variables and functions, we can reflect the main economic relations in the mechanism of determining the money demand.

The theory of money quantity is a theory that there is a causal relationship between the change of money quantity and the change of price and money value. Its core idea is: assuming other factors remain unchanged, the fluctuation of commodity price level is directly proportional to the amount of money, and the value of money is inversely proportional to the amount of money.