Among the Cambridge economists, Marshall pioneered the cash-balance theory.

The Marshallian quantity equation is expressed as:

M = KPY

Where, M stands for the quantity of money (currency + demand deposits);

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P refers to the price level;

V denotes aggregate real income; and

K is the fraction of the real income which people desire to hold, in money form, as ready purchasing power.

Using the above equation, the purchasing power of money (1/P), i.e., the value of money is found out by dividing the total amount of goods which the people want to hold out of the total income (KY) by the amount of the current supply of cash (M) with them. Thus:

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P = KY/M

(Here P represents purchasing power).

It follows that KY remaining unchanged, when M increase, P, the purchasing power of money, decreases.

Marshall also shows that M and V being constant, P improves with the increase in K. In his view, K is more important than M.