Quantity Theory of Money
a.k.a. QTM, MV = PQ
The idea that if the amount of money grows faster than the economy's output, prices rise.
In plain English
The idea that if the amount of money grows faster than the economy's output, prices rise.
The quantity theory of money sums up an old intuition in one equation, MV = PQ: money supply times how fast it circulates equals the price level times the amount of stuff produced. If money grows and nothing else changes, prices must go up.
In practice, how fast money circulates is not stable, which makes the theory a loose guide rather than a precise forecast. Still, it underpins the worry that excessive money creation ends in inflation.
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