economics medium Fill in the Blank

The 'Velocity of Money' refers to the average number of times a single unit of currency is used to purchase domestically produced goods and services within a specific time period, and it is mathematically expressed in the equation MV = ___.

  1. Current
  2. PT (or PY)
  3. InvITs (or Infrastructure Investment Trusts)
  4. Okun's

Answer: PT (or PY)

Irving Fisher's Equation of Exchange (MV = PT) forms the basis of the Quantity Theory of Money. M is the money supply, V is the velocity, P is the price level, and T is the volume of transactions (or Y for real output). It implies that if velocity (V) and output (T) are stable in the short run, any rapid increase in money supply (M) by the central bank will directly translate into a proportional rise in inflation (P).

Topic Macroeconomics - Money
Exam Relevance UPSC Prelims, SSC CGL, Banking
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