Q.The price level in a country is 4, the velocity of circulation of money is 10, and the total volume of transactions is 5,000 crore units. Using Fisher's equation, find the required quantity of money (M).

From Fisher's identity MV = PT, the money needed to support transactions at a given price level is M = PT / V.

M = (4 × 5000) / 10 = 20000 / 10 = 2000 crore.

Fisher's equation of exchange is:

Given the price level $P = 4$, velocity $V = 10$, and transactions $T = 5000$ crore units, we must find the money supply $M$.

Step 1 — Rearrange for M.

Step 2 — Substitute the values.

Step 3 — Verify (independent check). With M = 2000, the left side MV = 2000 × 10 = 20000; the right side PT = 4 × 5000 = 20000. Both sides equal 20000, so the identity holds and M = 2000 crore is correct.

Students often forget to divide by velocity, reporting M = PT = 20000. Remember that a higher velocity means each rupee does more work, so less money is needed — hence we divide by V. Confusing which variable is being asked for is avoided by first writing the full identity and only then isolating the unknown.