Quantity theory of money

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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.


See also