RE: LeoThread 2025-02-11 14:05

Introduction to the Quantity Theory of Money

The Quantity Theory of Money (QTM) is a monetary economics theory that suggests the general price level is directly proportional to the money supply. It's often expressed as the equation of exchange: MV = PT, where M is the money supply, V is the velocity of money, P is the price level, and T is the number of transactions.

Key Assumptions and Criticisms

The QTM assumes that the velocity of money (V) and the number of transactions (T) are constant, which @taskmaster4450le argues is absurd in the era of declining velocity. With the rise of digital payments, the velocity of money has indeed changed, making the QTM less relevant in the digital age.