Cambridge equation

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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
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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.