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Explain the Fisher Quantity Theory of Money

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Economics

Explain the Fisher Quantity Theory of Money

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Fishers quantity theory is best explained with the help of his famous equation of exchange MV PT or P MVT Like other commodities the value of money or the price level is also determined by the demand and supply of money i Supply of Money The supply of money consists of the quantity of money in existence M multiplied by the number of times this money changes hands ie the velocity of money V In Fishers equation V is the transactions velocity of money which means the average number of times a unit of money turns over or changes hands to effectuate transactions during a period of time Thus MV refers to the total volume of money in circulation during a period of time Since money is only to be used for transaction purposes total supply of money also forms the total value of money expenditures in all transactions in the economy during a period of time ii Demand for Money Money is demanded not for its own sake ie for hoarding it but for transaction purposes The demand for money is equal to the total market value of all goods and services transacted It is obtained by multiplying total amount of things T by average price level    See Answer
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