Variation of Output with the Variation of Anticipated and Unanticipated Money Supply in India –1950-91

Abstract

It has been examined that output level has responded to money supply over the time period 1950-1991. This money supply has two parts: (i) the anticipated and unanticipated. Consequently, we face an immediate question – which part of money supply is responsible for the observed variation in output level? This paper seeks to address this issue. Now, anticipated money supply and unanticipated money supply are to be sought first and then we see their relationships with the variation output level. , “Expectations Proper†is attitudes, dispositions or states of mind which determine our behaviour or at least accompany it. The precision of expectations depends on the quality and nature of information available and the model through which the information set is processed. The agent has very limited set of information. In such case ‘Adaptive Expectations’ are very suitable where future value of a variable is related to a set of some past values. This constitutes the heart of ‘Rational Expectations Process’. “Expectations about a variable are said to be rational if they depend, in the proper way, on the same things, that economic theory says actually determine the variableâ€.