00:01
So the quantity theory of money starts with the quantity equation.
00:04
And the quantity equation, which i assume you're familiar with, is mv is equal to p y, right? the idea that p y, nominal gdp, is the amount of spending.
00:17
M is the money used on spending, right? m is the amount of money.
00:23
V is how often it's used.
00:25
So mv is the total amount of money used on spending, which has to equal actual spending.
00:31
The quantity theory, however, is a prediction about how these things behave.
00:37
The quantity theory says that m is set by central bank, right? it says that v is set by the structure of the financial system, right, how often we use cash, how easily available are electronic payments, things like that.
00:56
It's not something that policymakers can control.
01:02
And it says that y is set by real factors of production.
01:08
So our education, our skills, our training, our technology, our capital, our land, stuff like this.
01:16
And that p, the endogenous variable, adjusts to balance this equation.
01:26
So the quantity theory of money says that prices are going to balance this equation.
01:32
So whenever we something changes here, prices are the variable that's going to adjust.
01:38
So let's do some examples, right? so in the first one, a, we again start off with mv is equal to p .y.
01:47
The money supply is going to double.
01:49
This is constant.
01:50
This is constant...