Question

Irving Fisher's equation of exchange is expressed as?

1) MS × PL = V × T
2) MS/V = PL × T
3) MS × T = PL × V
4) V = (PL × T)/MS

Answer 1

Irving Fisher's equation of exchange is MS × V = P × T, which relates money supply and price levels in an economy. With a given set of values for money supply, velocity, and price level, the volume of transactions can be calculated.

Step-by-step explanation:

Irving Fisher's equation of exchange is expressed as MS × V = P × T, where MS represents the money supply, V is the velocity of money, P is the price level, and T is the volume of transactions over a period of time. This equation is essential in understanding the relationship between money supply and price levels in an economy. To illustrate this relationship with an example, suppose we have an initial velocity of money (V) of 3, a money supply (MS) of 4,000 billion, and a price level (P) of 100. By substituting these values into the equation MV = PQ, we can solve for Q — the volume of transactions.