Question

What is the name given to the macroeconomic equation MV = PQ?

A. basic velocity of money equation
B. basic quantity equation of output
C. basic quantity equation of money
D. basic velocity of price equation

Answer 1

C. basic quantity equation of money

Step-by-step explanation:

MV = PQ

M = Money Supply ; V = Velocity of Circulation ; P = Price Level ; Q = Transactions

This is the equation given as per 'Fisher's Quantity Theory of Money' .

The theory states that : total money supply with its circulation rate is equal to = total money demand of the total value of transactions i.e Price x Quantity (no. of transactions).

The theory also highlights that : As money supply (M) increases, Price (P) also increases and the value / purchasing power of money falls.