Question

Provide a concise explanation for the following terms.

1.Quantity theorem

2.Cambridge equation

3.Equation of exchange

4.Crowding out

5. Multiplier

  

Answer 1

1. The quantity theorem states that there is a positive correlation between prices and the quantity of a product.

2. M^d=kPY

M^d - Money demand

k - Inverse of velocity

P - Product price level

Y - Real income

3. MV = PT

M - Money supply
V - Velocity
P - Price level of goods
T - Index of expenditures

4. Rising public sector spending drives down private sector spending.

5. The factor by the which the output is greater than the change that caused it. Generally affected by the marginal propensity to consume or marginal propensity to save.