comparison between Fand C approaches.pptx

Monetary Economics

1. Fisherian and Cambridge Approaches Comparison

2. Similarties Similar Equations 1 Same Conclusions 2 Same Phenomenon of Money 3 V and K - two sides of the same phenomenon 4

3. 01 02 03 Similarties Robertson's equation P=M/KT is similar to Fisher's P=MV/T. The difference lies in V and K, which is actually reciprocal to each other. Both the approaches lead to same conclusion. i.e., price level or value of money depends upon the money supply. MV+M'V' of Fisher's equation, M of Robertson's and Pigou's equation and n of Keynes' equation all refer the same.i.e., the total supply of Money

4. Fisher Robertson MV = PT M = KPT V = PT/M K = M/PT Thus, V = 1/K K = 1/V V refers to the rate of spending K refers to the extent of holding and not spending It means when people want to hold more money (higher than K), they want to spend less or the velocity of circulation of money will be less (lower the V). Thus, by substituting 1/V for K and 1/K for V, the two equations can be reconciled. The Fisherian approach emphasises money as a stock while the Cambridge approach stresses money as a flow.

5. Dissimilarties Relative Stress of Supply and Demand for Money. Definition of Money Flow and Stock Concepts Transaction and Income velocities Nature of P Factors affecting V and K Relationship between M and P Different approaches to Monetary Theory

6. Superiority of Cash Balance Approach Realistic Theory 01 Complete Theory 02 Broader Theory 03 More Useful 04

7. Superiority of Cash Balance Approach Explanation of Cyclical Fluctuations 05 Basis of Liquidity Preference Theory 06 Casual Process 07 Nature of Variables 08

8. Criticism of Cash- Balance Approach Simple Truism Unitary Elastic Demand Speculative Motive Ignored Investment goods ignored Role of Rate of Interest ignored Real factors ignored Real Balance effect ignored Narrow view of K Two-way relationship between k and P K and T assumed constant No explanation of trade cycles Lacks quantitative analysis

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