Management Notes

Reference Notes for Management

The quantity theory of money was restated by

The quantity theory of money was restated by

    1. Alfred Marshall
    2. Milton Friedman
    3. Irving Fisher
    4. Keynes

Correct Answer: b. Milton Friedman

 Answer Explanation

Milton Friedman restated the quantity theory of money. It is an important concept in monetary economics. This theory suggests that supply of money and the price level are directly related. In the equation of exchange, MV = PQ, where M represents the money supply, V represents the velocity of money (how many times a unit of money is spent), P represents the price level, and Q represents the real output of goods and services.

In “A Monetary History of the United States, 1867-1960,” co-authored by Milton Friedman and Anna Schwartz, an influential economist of the 20th century restated and popularized the quantity theory of money. Excessive increases in central bank money supply can cause inflation. He argued, and highlighted the role of monetary policy in shaping the overall economic environment.

In his restatement of Friedman’s quantity theory of money, monetary expansion was highlighted as having long-term effects. His famous statement was, “Inflation is always and everywhere a monetary phenomenon.” He believed that monetary policy might have a short-run impact on output and employment but primarily affected price levels in the long run.

As a result of Friedman’s work and advocacy for free markets and limited government intervention, economic policy and monetary issues have been profoundly impacted. In order to foster economic growth and stability, he strongly advocated for stable and predictable monetary growth. A number of policymakers and central banks around the world have influenced his ideas on controlling inflation and stabilizing the economy through monetary measures.

Why the other options are not correct

a. Alfred Marshall:

Alfred Marshall was a prominent economist in the late 19th and early 20th centuries. He made significant contributions to the field of economics, but he did not restate the quantity theory of money. In addition to laying the foundations for neoclassical economics, Marshall focused on microeconomics He especially supply and demand analysis and firm theory.

Among Marshall’s contributions was the introduction of the concept of price elasticity of demand. which was a fundamental component of consumer theory. Although Marshall’s work served as a foundation for understanding how markets function at the microeconomic level. It did not directly address the relationship between money supply and price.

c. Irving Fisher

The economist Irving Fisher primarily contributed to microeconomics and econometrics, and he is best remembered for his contributions to consumer theory, general equilibrium theory, and interest rates. Despite making significant contributions to monetary economics, Fisher did not restate the quantity theory of money. His notable works include “The Theory of Interest” and “The Purchasing Power of Money.” Fisher did not restate the quantity theory of money, however.

Among Fisher’s main interests were consumer behavior, investment decisions, and interest rate determination. As a result of his work, Fisher introduced the Fisher equation, which relates nominal interest rates to real interest rates and inflation expectations. The quantity theory of money was not restated in Fisher’s work, which was valuable for understanding the relationship between interest rates and inflation.

d. JM Keynes

A key figure in the development of macroeconomics was John Maynard Keynes, a prominent economist in the 20th century. He is famous for his revolutionary ideas about government intervention in the economy to combat recessions and his advocacy for active fiscal policy.

He wrote influential works on aggregate demand and the role of government in stabilizing the economy, such as “The General Theory of Employment, Interest, and Money. “Despite Keynes’ groundbreaking contributions to macroeconomics, he did not restate the quantity theory of money.

Keynes believed that aggregate demand was crucial to economic outcomes, especially during economic downturns. Through fiscal policy, such as increased government spending, he proposed that government intervention could boost demand and contribute to economic recovery.

Keynesian economics is a significant school of thought within macroeconomics, but it differs from quantity theory of money, which is primarily concerned with the relationship between the money supply and prices.

Conclusion

In conclusion, the correct answer is (b) Milton Friedman, who popularized the quantity theory of money. By emphasizing the relationship between the money supply and the price level in an economy. As a result of Friedman’s research, economists and policymakers have developed a deeper understanding of how monetary policy impacts inflation and economic stability.

Alfred Marshall, Irving Fisher, and J.M. Keynes were all important economists in their own right, but they did not restate the quantity theory of money. Each of these economists made significant contributions to various aspects of economics, from microeconomics to macroeconomics, but their work did not directly address the quantity theory of money.


Bibisha Shiwakoti

Leave a Comment