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Money Value Theory

Money Value Theory is a broad concept. The development of Money Value Theory owes much to the classical economists. The idea of the Quantity Theory of Money started to gain prominence during the early phase of 16th century.Economists like Alfred de Fovile, Ludwig von Mises and Irving Fisher helped in the development of the theory of money value.
In the post-Keynesian period, the ideas of Milton Friedman brought about a sea change in the money value theory.

Overview of Money Value Theory
Money Value Theory describes how the quantity or amount of money is related with the prevailing market price of the products and services. According to the Quantity Theory of Money, money quantity is directly related with the price level.
As a result an increase in the volume of money results in equiproportionate rise in price level. From this theory it follows that inflation is direct consequence of the rise in amount of money.
There is another approach that describes the money value theory from a different point of view. This theory of money value states that a rise in the supply of money causes the marginal value to fall. It results in inflation.

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Last Updated on : 26th June 2013

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