A formal expression of the quantity theory of money defining the relationship between the quantity of money in the economy, its velocity of circulation, the number of transactions over a given period and the general level of prices.
The equation is conventionally expressed as:
P = MV / T
- P = the general level of prices,
- M = the quantity of money in the economy,
- V = its velocity of circulation,
- T = the volume of transactions in a given period.