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Transaction Approach Versus Cash Balance Approach

 Transaction Approach versus Cash Balance Approach

There are specified points of similarities amidst Fisher’s transactions approach and the Cambridge cash balance approach. They are discussed below.

  1. Similarities
  2. Both the approaches have the succeeding similarities:

    1. Same Conclusion
    2. The Fisherian and Cambridge adaptations tends to the like conclusion that there is a direct and proportional association amidst the volume of money and the price level and an converse rational association amidst the volume of money and the value of money.

    1. Similar Equations
    2. Both the approaches use almost alike equations. Fisher’s equation P = MV / T is alike to Robertson’s equation P = M / kT. Nevertheless, the only disparity amidst the two symbols V and k are mutual to each other. Whilst, V = 1 / k, k = 1 / V. Therefore, V refers to the rate of spending and k the amount of money that people wish to possess in the form of cash balances or do not want to expend. Since these two symbols are mutual to each other, the disparity in the two equations can be submissive by substituting 1 / V in the place of k in Robertson’s equation and 1/ k in the place of V in Fisher’s equation.

    1. Money as the Same Event
    2. The varied signs given to the total volume of money in both the approaches denotes to the same event. As such MV + M’V’ of Fisher’s equation, M of the equation of Pigou and Robertson and n of Keynes’ equation refer to the total volume of money.

  3. Dissimilarities
  4. Inspite of these similarities, both the approaches have much dissimilarity.

    1. Functions of money
    2. Both the versions highlight on diverse functions of money. The Fisherian approach highlights on the medium of exchange function while the Cambridge approach the store of value function of money.

    1. Flow and Stock
    2. In Fisher’s approach money is a flow notion while in the Cambridge approach it is a stock notion. The previous associates to a epoch of time and the last to a pinnacle of time.

    1. V and k Different
    2. The meaning given to the two symbols V and k in both the versions is diverse. In Fisher’s equation V refers to the rate of spending and in Robertson’s equation k refers to the cash balances which people wish to hold. The previous highlights the transaction velocity of circulation and the last the earnings velocity.

    1. Nature of Price Level
    2. In Fisher’s equation, P denotes to the average price level of all goods and services. But in the Cambridge equation P denotes to the prices of final or consumer products.

    1. Nature of T
    2. In Fisher’s version, T refers to the total amount of goods and services exchanged for money, whereas in the Cambridge version, it denotes the concluding or consumer products exchanged for money.

    1. Emphasis on Supply and Demand for Money
    2. Fisher’s approach highlights the supply of money, whilst the Cambridge approach highlights both the demand for money and the supply for money.

    1. Different in Nature
    2. Both the approaches are diverse in types. The Fisherian approach is mechanistic for the reason that it does not describe how the variations in V fetch about variations in P.

      Conversely, the Cambridge approach, it is realistic for the reason that it analyses the psychological factors which influence k. It is on account of these disparities that Hansen wrote: “It is not true as is frequently alleged that the cash balance equation in simply the quantity thesis in new arithmetic dress.”

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