The
fishers transaction approach in the quantity theory of money usually may be explained with the following
equation of exchange MV= PT
Where
M is the supply of money
V is the velocity of circulation of money
P
is the general price level
T
is the
total transaction in physical
good /services.
According
to fisher, the nominal quantity of money in circulation (M) in an
independent variable determined
by the CBN (CENTRAL Bank ) the
total number or volume of transactions being a function of the level of income
which is assumption of a full employment income, the
value of T is fixed in the short urn. The velocity of money V is
constant. Therefore in MV= =PT, to make P the subject mathematically
Fi
MV = pt
PT
= MV
= P = MV
T T T
So
while the cash transaction
theorists are saying that their fomular captured all the economic factors of
monetary theory of quantity equation but hardly lived without criticism. These
criticism lead to the second theorists called the each balanced theorists.
CASH –balance(Cambridge
equation) theories. The cash –balance approach to the quantity theory of money may be expressed as P = KR/M….(1) where P is
the purchasing power of money K
IS the proportion of income that people
like to hold of money R is the volume of real income and M is the stock of
supply of money in the country at a given time (Period).
this
equation shows that the purchasing power
of money (p) varies directly with the K
or R and inversely with M (P= KR/M can be
expressed 1/p = KR/M
…(2)
or
M = KRP . in some text the equation is
stated as M = KP
as
used by Ibe 2002 that at any given moment therefore, the aggregate of cash balance of wages earners, businessmen,
governments bodies and other individuals and organization, represent the
quantity of commodities, services and property right over which people of the nation as a whole which people of the nation as a whole desire
to retain purchasing power.
Here
he illustrated that M= KTP where T
represent the total quantity of this item that will be bought in a given time period say one year. Then he said that the
cash balance school introduced
a symbol K to sand for that proportion of the year volume of trade over
which the people have the
demand for money is given by
KT and M used to stand for the average quant of
money available and P as an
average of the prices of commodities,
sources and property rights.
In
summary of the above analysis it can also be seen that with the equation
M=KTP therefore P =M
KT
That is
to say that while price level varies directly with the quantity of money in
supply or in circulation and inversely
with the demand for money
Conclusion
From
cas –transaction school
MV=
PT
WHILE
P = MV/ T
So
the symbol V is used as constant
The cash balance school
M=
KPT
If
P = M /MT
:. KPT
= M = K =
M
PT
PT PT
This
school used K as constant too
therefore the relationship between the
two symbols K and V are
1.
Both
of them are used as constant
2.
They
do not change over time at any little change in quantity and price level
3.
Even
if there is adjustment at all it is so insignificant that it may be noticed.
REFERENCE
Vaish
M.C
(2005) Monetary Theory Sixth Ed. Vikas Publishing House PVT Ltd
Ibe
John N.O (2002) Fundamentals of Monetary Theory and Policy, Gladoh
and Company Abakaliki Ebonyi Nigeria
John
m Keynes, A Web PAGE by economist Brad De Long
Milton
Friedman (1998) Economist Demand for Money Equation VIXII P 34
the Economist Publisher USA