Arrange the following theories in correct chronological order, starting from the earliest to latest:
(A) Patinkin’s Real Balance Effect
(B) Reformulated quantity theory of money
(C) Baumol’s theory of money
(D) Cash transaction approach
(E) Cash balance approach
Choose the correct answer from the options given below:

Correct option is A

Correct Option:1  (D), (E), (B), (C), (A) 
Explanation:

• The theories of money have evolved from the classical focus on money purely as a medium of exchange to modern theories that view money as a store of value and part of a broader asset portfolio.
• This evolution begins with Irving Fisher's classical equation and moves through the Cambridge school, leading to post-Keynesian and Monetarist developments.
  

Information Booster:

• Cash Transaction Approach (D): Proposed by Irving Fisher in The Purchasing Power of Money (1911). It focused on the velocity of money in transactions (MV=PT).
  
• Cash Balance Approach (E): Developed by Cambridge Economists (Marshall, Pigou) formally around 1917 (Pigou's The Value of Money). It shifted focus to the demand for holding money balances (M=kPY).
  
• Reformulated Quantity Theory (B): Proposed by Milton Friedman in 1956 (The Quantity Theory of Money: A Restatement). He treated money demand as a portfolio choice, distinct from the transaction view.
  
• Baumol’s Theory of Money (C): Proposed by William J. Baumol in 1952. It applied inventory theoretic approaches to the transaction demand for money, often grouped with post-Keynesian refinements.
• Patinkin’s Real Balance Effect (A): Fully detailed by Don Patinkin in Money, Interest, and Prices (1956). It integrated monetary and value theory, showing how real balances affect aggregate demand.

Additional Knowledge:

• Flow vs. Stock: Fisher’s approach (D) is a flow concept (money in motion), while the Cambridge approach (E) is a stock concept (money at rest/held).

• Real Balance Effect: Patinkin used this mechanism to argue that a fall in the price level increases the real value of money holdings, thereby stimulating consumption and restoring full employment, countering the "Liquidity Trap."

Note on B & C: While Baumol (1952) is chronologically before Friedman (1956), Option (1) places Friedman (B) before Baumol (C). In multiple-choice exams, one must choose the "best fit" option that respects the primary chronological anchors (Fisher $$\rightarrow$$ Cambridge).

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