Quantity theory of money

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.

See also

• Fisher's equation