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19 April, 12:26

What is the name given to the macroeconomic equation MV = PQ?

A. basic velocity of money equation

B. basic quantity equation of output

C. basic quantity equation of money

D. basic velocity of price equation

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  1. 19 April, 12:50
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    C. basic quantity equation of money

    Explanation:

    MV = PQ

    M = Money Supply; V = Velocity of Circulation; P = Price Level; Q = Transactions

    This is the equation given as per 'Fisher's Quantity Theory of Money'.

    The theory states that : total money supply with its circulation rate is equal to = total money demand of the total value of transactions i. e Price x Quantity (no. of transactions).

    The theory also highlights that : As money supply (M) increases, Price (P) also increases and the value / purchasing power of money falls.
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