<P> The Cambridge equation formally represents the Cambridge cash - balance theory, an alternative approach to the classical quantity theory of money . Both quantity theories, Cambridge and classical, attempt to express a relationship among the amount of goods produced, the price level, amounts of money, and how money moves . The Cambridge equation focuses on money demand instead of money supply . The theories also differ in explaining the movement of money: In the classical version, associated with Irving Fisher, money moves at a fixed rate and serves only as a medium of exchange while in the Cambridge approach money acts as a store of value and its movement depends on the desirability of holding cash . </P> <P> Economists associated with Cambridge University, including Alfred Marshall, A.C. Pigou, and John Maynard Keynes (before he developed his own, eponymous school of thought) contributed to a quantity theory of money that paid more attention to money demand than the supply - oriented classical version . The Cambridge economists argued that a certain portion of the money supply will not be used for transactions; instead, it will be held for the convenience and security of having cash on hand . This portion of cash is commonly represented as k, a portion of nominal income (the product of the price level and real income), P ⋅ Y (\ displaystyle P \ cdot Y)). The Cambridge economists also thought wealth would play a role, but wealth is often omitted from the equation for simplicity . The Cambridge equation is thus: </P>

Explain cambridge version of the quantity theory of money