Q.State Fisher's equation of exchange and explain each term. What does it conclude about the price level?

Fisher expressed the Quantity Theory as an identity in which total spending must equal the total money value of goods traded. …

Irving Fisher expressed the Quantity Theory of Money as the equation of exchange:

where:

• $M$ = the total quantity of money in circulation,
• $V$ = the velocity of circulation (the average number of times a unit of money is spent in the period),
• $P$ = the general price level, and
• $T$ = the total volume of goods and services transacted.

The left side ($MV$) is the total money spent in the economy; the right side ($PT$) is the total money value of goods sold. They are necessarily equal because every purchase is simultaneously a sale. …

Common errors include forgetting the assumption that V and T are constant (without it, no direct proportionality follows) and mislabelling T as total output/income (in Fisher's original it is the volume of *transactio …