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Hitesh Jhanji, Lovely Professional University Unit-12: Demand of Money: Quantity Theory of Money

Unit-12: Demand of Money: Quantity Theory of Money Notes

Contents
Objectives
Introduction
12.1 What is Value of Money?
12.2 Value of Money and Price Level
12.3 Theories of Value of Money
12.4 Quantity Theory of Money
12.5 Two Equations of Quantity Theory of Money
12.6 Concepts of Supply of Money and Demand for Money in Fisher’s Equation
12.7 Summary
12.8 Keywords
12.9 Review Questions
12.10 Further Readings

Objectives

After studying this unit, students will be able to:
y Know the value of money,
y Know the theories of value of money,
y Know the quantity theory of money.

Introduction

There is an inverse relation between the value of money and general price level of commodities and
services. When general price level decreases, value of money increases.

12.1 What is Value of Money?

In the words of Crowther, “Value of money is what it will buy.” As much goods and services are
received in exchange for one unit of money, it is its value. As per Robertson, “By the value of money
we mean the amount of things in general which will be given in exchange for a unit of money.”

Self Assessment

Fill in the Blanks:
1. ............. of money is what it will buy.
2. There is an ............ relation between the value of money and general price level of commodities
and services.
3. When general price level decreases, value of money ................

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