Quantity theory of money: Difference between revisions
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P = MV / T | P = MV / T | ||
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:P = price level, | :P = price level, | ||
Revision as of 11:25, 18 March 2015
Economics.
A theory formalised by Irving Fisher, which links the level of prices with the amount of money in circulation.
It is defined as:
P = MV / T
Where:
- P = price level,
- M = amount of money in circulation,
- V = velocity of circulation,
- T = volume of transactions.
Monetarists believe that it is the amount of money in circulation which has the biggest effect on price levels and inflation rates.
