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Quantity Theory of Money: True or False

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  • Chao Chiung, Ting

Abstract

I convert F=ma into m=F¡Âa arithmetically as economists convert V=PY¡ÂM into MV=PY. m=F¡Âa predicts absurdly that there is no mass if acceleration is zero. For example, you do not have mass when you sleep. Similarly, MV=PY predicts ridiculously that there is no aggregate income if there is no money. In fact, barter economy operates. As force is scalar in F=ma calculated as mass multiply acceleration so that force is not cause to determine mass in m=F¡Âa, income velocity is scalar in V=PY¡ÂM calculated as ex-post nominal aggregate income is divided by ex-post quantity of money stock so that aggregate income does not depend on income velocity. Since the symbol V in V=PY¡ÂM is scalar and the symbol V in MV=PY is cause so that MV=PY is not equivalent to V=PY¡ÂM, arithmetical conversion is an invalid method to prove MV=PY. In other words, it is computation that MV=PY is equivalent to V=PY¡ÂM as exactly as m=F¡Âa is equivalent to F=ma while it is thinking that MV=PY and V=PY¡ÂM are different. Hence, quantity theory of money is false.

Suggested Citation

  • Chao Chiung, Ting, 2017. "Quantity Theory of Money: True or False," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(10), pages 46-63, October.
  • Handle: RePEc:ibn:ijefaa:v:9:y:2017:i:10:p:46-63
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    References listed on IDEAS

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    More about this item

    Keywords

    money demand; money supply; definition of money; quantity theory of money; monetary policy;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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