a) "Simplicity of quantity theory of money is it's
strength as well as it's weakness ." Discuss.
b) Discuss Say's law of markets. How far is it relevant to a modern
society.
Some of the majors criticism against the QTM an appraisal are:
1. Constancy of Velocity,
2. V’s Independence of Money growth,
3. Exogeneity of M,
4. Lack of Transmission Mechanism,
5. Equilibrium Equation,
6. Other Influences on Y and
7. Real Output determined by Real-Sector Forces only.
The QTM is one of the most venerable and well-known theories of Economics. It is also one of the simplest-looking. This simplicity is both its strength and weakness. It is its strength because it states the hypothesised relation between M and P (and between a change in M and the resulting change in P) most clearly and precisely, a statement which can be easily understood by the reader.
Same is the weakness as described relation hypothesised is too clear and too precise and in the economic field such precise relations are not observed. Therefore, they are bound to raise doubts. Also, in their attempt to arrive at the simple and clear relation between M and P, the early quantity theorists simplified too much—broad judgements about economic phenomena, which, at best, are true only to a first order to approximation, were assumed (for simplicity, no doubt) to hold true always.” This was bound to invite rejection of the QTM on various counts.
As the question no. B is altogether different according to HOMEWORKLIB RULES I am answering first one
a) "Simplicity of quantity theory of money is it's strength as well as it's weakness ."...
Discuss Say's law of markets. How far is it relevant to a modern society?
According to the quantity theory of money, in the long run A. an increase in the quantity of money creates an increase in real GDP B. the quantity of money in a society will always be just the right amount. C. an increase in the quantity of money creates an increase in prices but no additional increase in real GDP D. None of the above answers are correct.
1. In the simple quantity theory of money, changes in the money supply affect the price level, but not real GDP. Do you agree or disagree with this statement. Explain your answer. 2. What are the assumptions and predictions of the simple quantity theory of money? Does the simple quantity theory of money predict well?
Discuss the quantity theory of money. Make a case against Monetarism.
2) How is the quantity theory of money different from the quantity equation, and why must the quantity equation always be true?
QUESTION 5 According to the quantity theory of money, a 10% increase in the quantity of money ultimately leads to a 10% increase in __________. a. disposable income b. real GDP c. unemployment rate d. the price level
Briefly describe the institutionalist theory of inflation as compared to the quantity theory of inflation? According to the institutional theory, how does the price-setting process contribute to inflation? Discuss how the federal reserve if put in a position of increasing the money supply or possibly forcing a recession?
What does the evidence from hyperinflations indicate with respect to the quantity theory of money? (1 mark) a. Evidence shows that money growth and inflation moved together, which supports the quantity theory. b. Evidence shows that money growth and inflation moved together, which does not support the quantity theory. c. Evidence shows that money growth and inflation did not move closely with each other, which supports the quantity theory. d. Evidence shows that money growth and inflation did not move...
The quantity theory of money _____ A. focuses mainly on the close link between short run fluctuations in velocity and the price level B. works very well for the U.S. but it does not hold empirically for the other countries in the long run C. provides a long run theory of inflation because it is based on the assumption that prices and wages are fully flexible D. all of the above E. none of the above
QUESTION 10 According to the quantity theory of money, if the money supply, M, increases by 10%, then A. velocity increases by 10%. B. the rate of inflation (in %) increases by 10. C. the nominal GDP increases by 10%. D. none of the above. 10 points QUESTION 11 According to the quantity theory of money and the classical model, changes in nominal money supply, M, has A. no effect on real variables. B. no effect on inflation rate....