Compare Fisher's version of the quantity theory of money with the Cambridge version. Which of the two should you prefer and why?
Understand the Problem
The question is asking to compare Fisher's version of the quantity theory of money with the Cambridge version, and to state which one is preferred and why.
Answer
The Cambridge version is preferable due to its focus on money demand and human behavior.
The Cambridge version, which focuses on money demand and considers income and human behavior, is often preferred. It provides a more realistic and comprehensive analysis of monetary dynamics compared to Fisher's approach, which focuses on money supply and assumes a constant velocity of money.
Answer for screen readers
The Cambridge version, which focuses on money demand and considers income and human behavior, is often preferred. It provides a more realistic and comprehensive analysis of monetary dynamics compared to Fisher's approach, which focuses on money supply and assumes a constant velocity of money.
More Information
The Cambridge approach is seen as more adaptable to varying economic conditions and better at explaining short-term fluctuations due to its emphasis on the behavior and motivations behind holding money.
Tips
A common mistake is overlooking the importance of money velocity in Fisher's theory or assuming Cambridge's version ignores money supply entirely.
Sources
- Fisherian and Cambridge Approaches Compared: Which 1 is Superior in Monetary Economics? - economicsdiscussion.net
- Quantity Theory of Money: Fisherian vs. Cambridge Approach - homework.study.com
AI-generated content may contain errors. Please verify critical information
