Answer to Question #225626 in Macroeconomics for Jordan

Question

Compare the approaches of fisher's transaction and pigou cash balance to the quantity theory. Are there any similarities between them? If so , in which respect?

Answer 1

Similarities

• Both approaches arrive at the same conclusion: the money supply determines the price level or the value of money. In other words, the money supply and the price level have a directly proportional link, whereas the money supply and the value of money have an inverse proportionate relationship.
• Money's Same Phenomenon: Fisher's equation MV + M'V', Robertson's and Pigou's equation M, and Keynes' equation n all relate to the same thing: the entire supply of money.
• Because they are two sides of the same phenomena, the Fisherian and Cambridge methods are not fundamentally different. Money is emphasized as a stock in the Fisherian method, whereas money is emphasized as a flow in the Cambridge approach.

Differences

Despite the fact that the two techniques reach similar results and have comparable consequences, there are some significant distinctions between them. The Marshallian form of the quantity theory, M = KY, provides a fundamentally fresh approach to the problem of money and prices, according to Hansen. It is not true, as is sometimes claimed, that the cash-balance equation is nothing more than the quantity theory dressed up in algebraic garb. To claim this is to completely overlook the importance of K in the Marshallian equation.