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Quantity Theory of Money definitions

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  • Quantity Theory of Money
    A model linking the amount of money in circulation to overall price levels and economic output using a simple equation.
  • Money Supply
    The total amount of currency available in an economy, typically determined by central authorities like the Fed.
  • Velocity of Money
    The average frequency each unit of currency is used for transactions within a year, reflecting how quickly money circulates.
  • Price Level
    A measure indicating the average prices of goods and services in an economy, often compared to a base year.
  • Real GDP
    Economic output adjusted for price changes, representing the value of goods and services at constant prices.
  • Inflation
    A sustained increase in the general price level, occurring when money supply grows faster than economic output.
  • Deflation
    A decrease in the general price level, resulting when economic output grows faster than the money supply.
  • Stable Prices
    A condition where the money supply and economic output grow at equal rates, keeping average prices unchanged.
  • Price Deflator
    An index used to adjust nominal values to real values, showing how much prices have changed since a base year.
  • Macroeconomic Variables
    Key indicators such as money supply, price level, and GDP that describe the overall performance of an economy.
  • Mathematical Identity
    A relationship allowing the transformation of the quantity theory equation from multiplication to addition for analyzing changes.
  • Base Year
    A reference period used for comparing price levels and economic output, providing a benchmark for measuring changes.
  • Central Authority
    An institution, like the Federal Reserve, responsible for setting and regulating the money supply in an economy.
  • Economic Output
    The total value of goods and services produced in an economy, often measured by real GDP.
  • Circulation
    The movement of money through transactions, reflecting how often currency changes hands within a given period.