Q.In an economy, the quantity of money is ₹5,000 crore, the general price level is 3, and the total volume of transactions is 20,000 crore units. Calculate the velocity of circulation of money.

Rearranging MV = PT, the velocity of money is V = PT / M — it tells us how many times, on average, each rupee is spent.

Fisher's equation of exchange is:

Given money supply $M = 5000$ crore, price level $P = 3$, and transactions $T = 20000$ crore units, we must find velocity $V$.

Step 1 — Rearrange for V.

Step 2 — Substitute the values.

$V = \frac{3 \times 20000}{5000} = \frac{60000}{5000} = 12$ …

The most frequent slip is inverting the ratio and writing V = M / PT. Since a small money stock must circulate rapidly to finance a large value of transactions, velocity is …