Purchase Solution

Theory of money and deflation

Not what you're looking for?

Ask Custom Question

Three questions:

Outline the Quantity theory of money and it's theory of inflation.

What effect will deflation have on the economy?

If the deflation is acute and lasts only a short time, how will the effect differ from deflation that lasts a long time and is gradual?

Purchase this Solution

Solution Summary

The story discusses the theory of money and deflation.

Solution Preview

The theory of inflation can be succinctly stated by the Equation of Exchange: MV = PT, where M is money, V is velocity, P the price level and T the level of transactions. Because output is given by the real side and the demand for money is an institutional arrangement, then V and T are more or less fixed. The only variables which remain, then, are M and P. If the equation above holds at all times, then if M rises, we necessarily need P to rise by the same amount. Thus, money supply expansions only cause price inflation. This is the Quantity Theory of ...

Purchase this Solution


Free BrainMass Quizzes
Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.