Cash balance approach

Md = money demand Y = income K = proportion of nominal income P = price level PY = nominal income .. my doubt is how come income × price level equals nominal income?? explain logic

Thread Starter

Sajeetha R

CA Final

★ 45K+

09-Sep-23 18:51

Real Income (Y): This refers to the total value of all goods and services produced in an economy, adjusted for price changes or inflation. It measures the actual physical quantity of output. When we say "income" in this context, we're referring broadly to the value of all goods and services produced, often called GDP (Gross Domestic Product). Price Level (P): This is a measure of average prices in the economy. It can be thought of as a weighted average of the prices of all goods and services in the economy. Nominal Income (PY): This refers to the total value of all goods and services produced in an economy without adjusting for price changes or inflation. It represents the current dollar value of output, which is the product of the quantity of output and the prices at which the output is sold. When you multiply the quantity of goods and services (real income or Y) by their prices (P), you get the total dollar value of these goods and services, which is the nominal income (PY).

frenil dsouza

Faculty

12-Sep-23 11:59