State Irving Fisher’s Quantity theory of money.

Irving Fisher’s Quantity of theory of money states that the general price level of goods and services in an economy varies directly with the quantity of money in the circulation.

MV = PT
P = MV/T

Where  M = quantity of money in existence,

V = the transactions velocity of money which means the average number of times a unit of money turns over or changes hands to effectuate transactions during a period of time.

P = average price or price level

T = total number of transactions or the total goods and services transacted.

The theory assumes that

• Demand and supply of money are equal and proportional
• Supply of money is exogenously determined
• T and V do not change
• Price is only affected by changes in money supply.
• there is full employment and economy is stable
• money is only demanded for transaction motives
• all business transactions are effected by used of money