Which of the following is Fisher's equation of exchange?
Show answer & explanation
Correct answer: A
Explanation
The correct answer is option 1 i.e. MV = PT.
Fisher's Equation of Exchange, formulated by economist Irving Fisher, is expressed as:
MV = PT,
where:
- M represents the money supply,
- V is the velocity of money (how often money circulates),
- P is the price level, and
- T refers to the volume of transactions or output.
This equation illustrates the relationship between money supply, its usage, and economic activity. It emphasizes that changes in the money supply or velocity can influence price levels and transaction volumes, forming a basis for monetary theory.