Quantity theory of money: Difference between revisions
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A theory formalised by Irving Fisher, which links the level of prices with the amount of money in circulation. | 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 and T = volume of transactions. | It is defined as: | ||
P = MV/T, | |||
:where P = price level, | |||
:M = amount of money in circulation, | |||
:V = velocity of circulation and | |||
: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. | Monetarists believe that it is the amount of money in circulation which has the biggest effect on price levels and inflation rates. | ||
Revision as of 14:36, 26 November 2014
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 and
- 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.
