Question

Which of the following is true with respect to Irving Fisher's quantity equation, M times V = P times Y?

A. V = P times Y/M
B. P = the GDP deflator
C. M = M1 definition of the money supply
D. V = Average number of times a dollar is spent on goods and services
E. All of the above

Answer 1

The correct statement with respect to Irving Fisher's quantity equation is that V represents the average number of times a dollar is spent on goods and services.

Step-by-step explanation:

The quantity equation, also known as the basic quantity equation of money, is represented as M x V = P x Y, where M is the money supply, V is the velocity of money, P is the price level, and Y is the real GDP. The equation states that the money supply multiplied by the velocity of money is equal to the price level multiplied by the real GDP.

Therefore, with respect to Irving Fisher's quantity equation:

• A. V = P x Y/M is not true.
• B. P = the GDP deflator is not true.
• C. M = M1 definition of the money supply is not true.
• D. V = Average number of times a dollar is spent on goods and services is true.

So, the correct answer is D. V = Average number of times a dollar is spent on goods and services.