1. Quantity Theory of Money
Monetary Policy

2. MV = PT
Where:-
M = Money Supply
V = Velocity of Circulation
P = Price Level
T = Transactions or Output
Monetarists assume V and T are fixed, therefore M will directly impact P

3. Narrow and Broad Money Narrow Money (M0) Broad Money (M4)
A measure of notes and coins in circulation
Broad Money (M4)
M0 + bank accounts.
It includes retail bank and building society deposits + wholesale bank and building society deposits
M1 to M3 exists but are not as widely used

6. Lending and Inflation Greater lending increases money balances
Increased money balances are spent on goods and services
This enables firms to increase prices – Demand Pull Inflation
Also, labour becomes more scarce and wages rise – Cost Push Inflation

7. A Conflict - Imported Inflation
Increased demand for Goods and Services increases the demand for Imports
This is a leakage which reduces Money Supply
As money £s are available on the foreign exchanges, the value will fall
This makes UK goods cheaper, increasing Exports and potentially causing Inflation