THE TRANSACTION THEORISTS | MARTINS LIBRARY

The fishers transaction approach in the quantity theory of money  usually may be explained with the following equation  of exchange MV= PT

Where M is the supply  of  money

V  is the velocity of circulation of money

P is the general price level

T is  the  total transaction in  physical good /services.

According to fisher, the nominal quantity of money in circulation (M)  in an  independent variable

determined  by the CBN (CENTRAL Bank )  the total number or volume of transactions being a function of the level of income which is assumption of a full employment income,  the  value of T is fixed in the short urn. The velocity of money V is constant. Therefore in MV= =PT, to make P the subject mathematically

Fi MV = pt

PT  =  MV =   P   =  MV

T          T                   T

So while  the cash transaction theorists  are saying that their  fomular captured all the economic factors of monetary theory of quantity equation but hardly lived without criticism. These criticism lead  to  the second theorists called the each  balanced theorists.

CASH –balance(Cambridge equation)  theories. The  cash –balance approach  to the quantity theory  of money may be expressed as  P = KR/M….(1)  where P is  the purchasing power of money  K IS the proportion of income  that people like to hold of money R is the volume of real income and M is the stock of supply of money in the country at a given time (Period).

this equation shows that the  purchasing power of money (p) varies  directly with the K or R and inversely with M (P= KR/M can be  expressed  1/p  = KR/M  …(2)

or M = KRP . in some text  the equation is stated  as M = KP

as used by Ibe 2002 that at any given moment therefore, the  aggregate of cash balance of wages earners, businessmen, governments bodies and other individuals and organization, represent the quantity of commodities, services and property right over   which people of the nation as a whole  which people of the nation as a whole desire to retain purchasing power.

Here he illustrated that M= KTP  where T represent the total  quantity of  this item that will be bought in a  given time period say one year.  Then he said that  the  cash balance  school introduced a  symbol K  to sand for that  proportion of the year volume of trade over which   the people have  the  demand  for money is given by KT  and M used to stand  for the average quant  of  money available and P as  an average of the prices of  commodities, sources and property rights.

In summary of  the  above analysis  it can also be seen that with the equation M=KTP therefore  P =M

                                      KT 

 That  is to say that while price level varies directly with the quantity of money in supply  or in circulation and inversely with the demand for money

Conclusion

From cas –transaction school

MV= PT

WHILE P = MV/ T

So the symbol V is used as constant

The  cash balance school

M= KPT

If P = M /MT

:.  KPT    = M    =  K  = M

     PT         PT              PT 

 This  school used K as constant  too therefore the relationship  between the two symbols K and V are 

1.      Both of them are used  as constant 

2.      They do not change over time at any little change in quantity and price level

3.      Even if there is adjustment at all it is so insignificant that it may be noticed.