Cambridge equation

Updated: Aug 20, 2021

The formulation of the quantity theory of money as M = kPY. Here M is the demand for money balances, P is the price level, Y is the level of real national income, and A: is a parameter reflecting economic structure and monetary habits, namely the ratio of total transactions to income ratio of desired money balances to total transactions. The Cambridge equation is a modified form of the quantity equation, MV = PT, with k = r/( VY), where V is the velocity of circulation and T is the real volume of transactions.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.