Money Supply and Price Level Quantity Theory of Money

1. Topic:- Money Supply and
Price Level Quantity Theory
of Money.

2. MONEY SUPPLY and PRICE LEVEL
QUNTITY THEORY of MONEY:
In economics, the quantity theory of
money is a theory emphasizing the
positive relationship of overall prices
or the nominal value of expenditures
to the quantity of money. Money
supply & price level are also qualify
by the Quantity theory of money.

3. HISTORY of MONEY
 In the past, goods were to be exchanged
in the goods of another without
considering of its money value. The
exchange between good against good is
called Barter. Barter becomes more and
more difficult as people become
dispossessed of the means of production
of widely-needed goods.

4. HISTORY of MONEY
1 2
3
4
This is the figure of History of Money

5. HISTORY of MONEY
 As a result, money used to be considered as
simpler for small trade. The use of proto-
money may date back to at least 100,000 years
ago, and the use of precious metals as money
dates back at least 6000 years. The use of gold
as money has been traced back to the fourth
millennium B.C.
 The first banknotes was used in China in the
7th century, and the first in Europe was issued
by Stockholm's Bunco in 1661.

6. Definition of “Money Supply”
 The money supply can include cash,
coins and balances held in checking and
savings accounts. Economists analyze
the money supply and develop policies
revolving around it through controlling
interest rates and increasing or
decreasing the amount of money flowing
in the economy.

7. Bangladesh Bank Open Data
Initiative:
Bangladesh Bank took another step
forward in making its vast repository
of data accessible to the general
public. Moreover for those
researchers interested in analyzing
time series data as far back as 1972.

8. Bangladesh Bank Open Data
Initiative:
(Taka in million)
Components May, 2014 April, 2014 May, 2013
Percentage Changes of May,
2014 over
April, 2014 May, 2013
1. Currency Outside banks 763064 739182 679246 3.23 12.34
2. Deposits of Financial Institutions with
Bangladesh Bank (except DMBs
3860 3860 3127 0 23.44
3. Demand Deposits with DMBs* 571320 576525 500583 -0.9 14.13
4. Time Deposits with DMBs* 5483364 5416159 4735864 1.24 15.78
5. Money Supply (M1) (1+2+3) 1338244 1319567 1182956 1.42 13.13
6. Money Supply(M2) (4+5) 6821608 6735726 5918820 1.28 15.25

9. Definition of 'Price Level'
The average of current prices across the
entire spectrum of goods and services
produced in the economy. In a more general
sense, price level refers to any static picture
of the price of a given good, service or
tradable security. Price levels may be given
in small ranges, such as with securities
prices or presented as a discrete value.

10. Explains 'Price Level’
 The price level is usually examined through a
"basket of goods" approach, in which a
collection of consumer-based goods and
services are examined in aggregate; changes
in the aggregate price over time will push the
index measuring the basket of goods higher.
As prices rise (inflation), or fall (deflation),
consumer demand for goods is also affected,
which leads broad production measures like
gross domestic product (GDP) higher or
lower.

11. Definition of 'Quantity Theory
Of Money’
 An economic theory which proposes a
positive relationship between changes in the
money supply and the long-term price of
goods. It states that increasing the amount of
money in the economy will eventually lead to
an equal percentage rise in the prices of
products and services. The calculation behind
the quantity theory of money is based upon
Fisher Equation.

12. Quantity Theory of Money
 The concept of the quantity theory of money
(QTM) began in the 16th century. As gold and
silver inflows from the Americas into Europe
were being minted into coins, there was a
resulting rise in inflation. This led economist
Henry Thornton in 1802 to assume that more
money equals more inflation and that an increase
in money supply does not necessarily mean an
increase in economic output. Here we look at the
assumptions and calculations underlying the
QTM, as well as its relationship to monetarism
and ways the theory has been challenged.

13. The Theory's Calculations
 In its simplest form, the theory is expressed
as:
MV = PT (the Fisher Equation)
Each variable denotes the following:
M = Money Supply
V = Velocity of Circulation (the number of
times money changes hands)
P = Average Price Level
T = Volume of Transactions of Goods and
Services

14. The Theory's Calculations
The original theory was considered
orthodox among 17th century
classical economists and was
overhauled by 20th-century
economists Irving Fisher, who
formulated the above equation.

15. Any Question

16. Thank You