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In the long run, the volatility of money supply will also only cause changes in inflation rate and thus the nominal GDP of the country, as believed by monetarists, as the markets are believed to be always approaching their full employment rate.
But with evolution of capital markets and appearance of numerous wealth capitalization methods besides holding M1, the velocity of money became very variable rather than stable and equal to one, which made scholars hesitate on the validity of Quantity Theory of Money, while equation of exchange is supported by majority of economics schools.
Besides many contributions made by Knut Wicksell into the economic theory, the major appreciated work is the interest theory implications from his work Interest and Prices, where he separated the notion of monetary interest rate, or interest rate derived from the capital markets; and the natural interest rate, or the interest rate neutral to the prices in the real markets and which equates the supply and demand in the real market, resting on the assumption that the capital markets are not necessary....
Developing this theoretic background, Austrian economists have suggested that economic growth begins when the natural interest rate exceeds the one observed in the capital markets, this theory referred to as the theory of business cycles. The findings of Wicksell had also big effect on further Keynes "The General Theory of Employment, Interest, and Money."
References Available at http://ingrimayne.com/econ/Money/Equation.html
Friedman, Milton and Schwartz, Anna J. (1965). The Great Contraction 1929-1933. Princeton: Princeton University Press. Available at http://www.econweb.com/MacroWelcome/monetarism/notes.html#3Available at http://www.dallasfed.org/research/ei/ei0401.html. Available at http://ingrimayne.com/econ/Money/Equation.html
Friedman, Milton and Schwartz, Anna J. (1965). The Great Contraction 1929-1933. Princeton: Princeton University Press. Available at http://www.econweb.com/MacroWelcome/monetarism/notes.html#3Available at http://www.dallasfed.org/research/ei/ei0401.html quanitity theory of money, Wicksell and inflation and interest rates
2.5. Limitations of the study At the level of the limitations, these refer to the usage of secondary information, as opposed to the collection of primary data through the direct analysis of the Chinese market. This limitation is nevertheless addressed through the integration of multiple sources of valid and verifiable information, leading as such to the creation of solid, relevant and reliable findings. The second limitation is one common to all research
" 2 Apr. 2004. Federal Reserve Bank of San Francisco. Retrieved November 21, 2006 from Web site: http://www.frbsf.org/publications/economics/letter/2004/el2004-08.html Ranson, David. "Inflation." The Concise Encyclopedia of Economics." Retrieved November 21, 2006 from Web site: http://www.econlib.org/library/Enc/Inflation.html Inflation." Wikipedia. Retrieved November 21, 2006 from Web site: http://en.wikipedia.org/wiki/Inflation#The_role_of_inflation_in_the_economy Svensson, Lars E.O., "Escaping from a Liquidity Trap and Deflation: The Foolproof Way and Others." Dec. 2003. Retrieved November 21, 2006 from Web site: http://www.princeton.edu/svensson/papers/jep2.pdf Inflation." Encyclopedia of American History.
Conclusions There is no generally accepted theory of inflation. The causes that generate it are numerous and include economic, psychological, social, political, internal, and external factors. Inflation is based on numerous partial causes, which correlated determine the inflationist process. Inflation is generally considered an unbalance between money and goods, consisting in the existence of excessive money supply in relation with the volume of goods subjected to transactions, resulting an excess of unsatisfied total demand. Given the processes that determine
"..most importantly, we find that inflation has a dramatic negative impact on the profitability of banks." (2006) Boyd and Champ additionally state that: "The world has seen a dramatic decline in inflation rates in recent decades, but concerns about inflation may still be warranted, especially in some countries. Evidence is mounting that inflation is harmful to economic activity even at fairly modest rates of inflation because of the way it
The clarification of the timeframe before the inflation will return to the level that has been targeted following the shock of employment rate shifts is "the horizon of the policy rule." (McDonald, nd; 73) Inflation rates grew for two years while interest rates were rising and yet unemployment was lowering during this time. In the United States, it can be noted as well that while unemployment rates grew inflation
The Federal Reserve should be able to control and measure the demand and supply on the market and correlate the two indexes. Also, and probably most importantly, the Reserve should constantly supervise and regulate the monetary system, assuring correspondence between the amount of money in coins and bills on the market and their coverage in gold and in the total quantity of goods and services produced. The economic practice has concluded