It's a bullshit theory that states an increase in the supply of money creates a direct and proportional change in price levels.
If you increase the money supply by 10% everything will pretty much just become 10% more expensive... but this is empirically false. Remember a few years ago retards were saying QE was going to result in hyper inflation and America was going to become Zimbabwe... but this didn't happen and you didn't get a massive amount of inflation.
IRL the supply of money actually isn't generally the CAUSE of price inflation... but actual concrete supply or demand side factors. What actually generally causes inflation is credit demand results in price increases which ends up increasing the supply of money as a result of the increased demand.
>>1035062 I have learned this before but I simply did not get it, now shut the fuck up and go bounce off to your perfect world where everyone gets eveything the very first second they hear it. I just wanted some fucking guidance, not very hard to understand is it?
>>1035119 I get it, but honestly, the whole subject economics that is being taught in academia is bullshit, economics is a philosophy, not a math subject, it is to explain people why and how a phenomenon is present in the economy. I think the best way to study economics is to study the real world phenomena. Instead of going to college learning theory on top of near useless theory.
>>1033583 for simplicity, let's hold the velocity of money constant. The amount of money in the economy is a factor of the real price level times the quantity of money. If the real price level goes up, and the quantity remains the same, then there is more "money" in the economy as the currency is worth more per unit. Likewise, when the quantity of money goes up and the price level remains the same, there is actually more physical money in the economy but it is worth the same amount.
>>1035119 >If you increase the money supply by 10% everything will pretty much just become 10% more expensive except that is not what it claims, it claims that price level will increase by 10% IF THE VELOCITY OF MONEY REMAINS CONSTANT, which it fucking doesnt during QE.
>What actually generally causes inflation is credit demand results in price increases which ends up increasing the supply of money as a result of the increased demand.
which this forumla states, as demand for money is also considered velocity of money
>>1035313 Does it not matter as well about what kind of product we are talking when talking about elasticity? For example luxury and primary goods have totally different elasticity stuff, no one will get more bread than usual when their income increases. However luxury expenses will increase with the income increase.
>>1035308 >>1035311 Thanks, I read your replies and grasp the concept more than just 4 letters, I actually kinda get why it is those 4 letters and combinations within the equation. What happens when there is inflation? Price stays same and gdp lowers? money stays same? Velocity goes down? Or does velocity stay same and money goes down?
>>1035363 you sound like you're 15 and a complete moron. This is literally the most basic shit from high school econ and the math is the most basic of formulas from middle school algebra so you dont have a 'background in econ and math'
>>1035376 The fact you can't work this out for yourself with the information ITT furthers my point.
>>1036732 Read my responses on the people that actually did give their insight on the difficulties I had understanding the deeper concept of this theory. I get it now because of them, different people learn differently. I like things to be explained to me sometimes.
This Equation is correct if you prove it with the AS-AD curve.
A higher increase in the money supply generally lowers the inflation rate raises investement and employement and raises prices in the short run, if you look at the medium run where the Y will return to Yn by a leftward shift along the AD curve causing the price level move from P' to P" where P">P'>P and Y"=Yn but Yn < Y'
The MV=PQ is like the most simple equation you will find in Macro economics.
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