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Quantity Theory of Money definitions

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  • Quantity Theory of Money
    A framework linking the amount of money in circulation to overall price levels using a simple mathematical relationship.
  • Money Supply
    The total amount of currency available in an economy, typically regulated by a central authority like the Fed.
  • Velocity of Money
    The average number of times each unit of currency is spent on goods and services within a year.
  • Price Level
    A measure reflecting the average of current prices for goods and services compared to a base year.
  • Real GDP
    The total value of all goods and services produced, adjusted to remove the effects of price changes over time.
  • Price Deflator
    An index used to adjust nominal GDP to real GDP by accounting for changes in price levels.
  • Inflation
    A sustained increase in the general price level, often resulting from money supply growth outpacing real GDP.
  • Deflation
    A general decline in prices, typically occurring when real GDP grows faster than the money supply.
  • Stable Prices
    A situation where the overall price level remains unchanged due to equal growth rates in money supply and real GDP.
  • Equation of Exchange
    A mathematical identity expressing the relationship among money supply, velocity, price level, and real GDP.
  • Base Year
    A reference period used for comparison when measuring changes in price levels or economic output.
  • Mathematical Identity
    A relationship that holds true by definition, such as the equality in the equation connecting money, velocity, prices, and output.
  • Central Authority
    An institution, like the Federal Reserve, responsible for regulating the amount of currency in the economy.