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The quantity theory of money (often abbreviated QTM) is a hypothesis within monetary economics which states that the general price level of goods and services is directly proportional to the amount of money in circulation (i.e., the money supply), and that the causality runs from money to prices. This implies that the theory potentially ...
The quantity theory of money adds assumptions about the money supply, the price level, and the effect of interest rates on velocity to create a theory about the causes of inflation and the effects of monetary policy.
According to the quantity theory supported by the monetarist school of thought, there is a tight causal connection between growth in the money supply and inflation. In particular during the 1970s and 1980s this idea was influential, and several major central banks during that period attempted to control the money supply closely, following a ...
The mathematical theory of information is based on probability theory and statistics, and measures information with several quantities of information. The choice of logarithmic base in the following formulae determines the unit of information entropy that is used.
Marshallian demand curves show the effect of price changes on quantity demanded. As the price of a good rises, ordinarily, the quantity of that good demanded will fall, but not in every case. The price rise has both a substitution effect and an income effect. The substitution effect is the change in quantity demanded due to a price change that ...
As it is such a basic quantity, it also appears in several other settings, such as the length of a message needed to transmit the event given an optimal source coding of the random variable. The Shannon information is closely related to entropy , which is the expected value of the self-information of a random variable, quantifying how ...
This is useful because economists typically place price (P) on the vertical axis and quantity (demand, Q) on the horizontal axis in supply-and-demand diagrams, so it is the inverse demand function that depicts the graphed demand curve in the way the reader expects to see.
In neoclassical economic theory, the purchasing power parity theory assumes that the exchange rate between two currencies actually observed in the different international markets is the one that is used in the purchasing power parity comparisons, so that the same amount of goods could actually be purchased in either currency with the same ...