<P> In the typical view of the quantity theory, money velocity (V) and the quantity of goods produced (Q) would be constant, so any increase in money supply (M) would lead to a direct increase in price level (P). The quantity theory of money was a central part of the classical theory of the economy that prevailed in the early twentieth century . </P> <P> Ludwig Von Mises's work Theory of Money and Credit, published in 1912, was one of the first books from the Austrian School to deal with macroeconomic topics . </P> <P> Macroeconomics, at least in its modern form, began with the publication of John Maynard Keynes's General Theory of Employment, Interest and Money . When the Great Depression struck, classical economists had difficulty explaining how goods could go unsold and workers could be left unemployed . In classical theory, prices and wages would drop until the market cleared, and all goods and labor were sold . Keynes offered a new theory of economics that explained why markets might not clear, which would evolve (later in the 20th century) into a group of macroeconomic schools of thought known as Keynesian economics--also called Keynesianism or Keynesian theory . </P> <P> In Keynes's theory, the quantity theory broke down because people and businesses tend to hold on to their cash in tough economic times--a phenomenon he described in terms of liquidity preferences . Keynes also explained how the multiplier effect would magnify a small decrease in consumption or investment and cause declines throughout the economy . Keynes also noted the role uncertainty and animal spirits can play in the economy . </P>

The book that is the basis for modern macroeconomic theory is