Crude Quantity Theory of Money: A Case of Bangladesh Economy

The Crude Quantity Theory of Money is a very important and relevant theory of the classical economists which explains the relationship between money supply and price level. The proponents of this theory have divided an economy into two sectors (i.e. real and monetary) by applying this theory. The prime message of this theory is that money supply will change price level proportionately especially in the short run. They explain it by assuming constancy of real output (Q) and Velocity of circulation (V). In this paper the researchers have tried to explain the position of Q and V in the short and long run in the economy of Bangladesh. The authors have also tried to explain why Q and V change in the economy of Bangladesh. For this reason, they have used time series data of macro variables related to the Crude Quantity Theory of Money. They suggest framing a new version of Quantity Theory of Money to explain the relationship between money supply and price level properly.