INTRODUCTION
The
inconsistent movement in short period in the general level of prices has
attracted special attention ever since many economists started to write on the
economic issues writing on the issue of
quantity theory of money it is the
explanation of the general chance in
the price level in the economy and the
corresponding change in the quantity of
money in circulation.This
does not rule out the fact that there are other views that change in price are caused by non-monetary factors
such as perils, war, famine or other
special circumstances.
The first explanations
of change in the price is what is known as the quantity theory of money. Vaish
(2005) stated that the principal thrust of any given change in the total supply
of money s to cause changes in the level of prices in the economy. In this work
there will be analysis of other views or believes of those tends which
lead to the division the theorists into
two schools: cash transaction theorist and the cash balance theorists and there quantity
equation formulated which will as the
and identify the re3lationshp between the mathematical notation K and V and
their implication on the summary
MONEY THEORY
Monetary
theory developed a link between the
money supply and other micro-economic
variables including price level and the
output. The theory developed by classical economists over hundred or more years
ago relates the amount of money in the economy
to the nomad income. Economic
living fisher is given credit for the
development of the theory. It began with
an identity known
as the equation of
exchange: MV = PY
Where
M is the quantity of money, P is the
price level and Y is the aggregate output (aggregate income ) . v is the
velocity, which saves as the link between money ad output
Velocity
is the number of times annually that naira is used that
naira is used to purchase goods and services within the economy
To
move towards the quantity theory of money fisher made two assumption,
1.
He
viewed velocity as constant in the short run. This is because it has less rapid
change a no change at all
2.
Fisher
like all classical economists believed
that flexible wages and prices guaranteed income Y so at full employment Y is
constant at the short run
J.M Keynes is another classical economist who
became famous after his book called the
general theory of employment, interest
rate and money. Here he developed the
theory of money know as the
liquidity preference theory
There
above lead to the group of terrorists call the cash transaction theories
and cash balance theorists