The Fisher Equation lies at the heart of the Quantity Theory of Money. MV=PT, where M = Money Supply, V= Velocity of circulation, P= Price Level and T = Transactions.

Why is MV equated to PT?

P is the price level. T is the total goods and services transacted. The equation of exchange is an identity equation, i.e., MV is identically equal to PT (or MV = PT). … The equation states the fact that the actual total value of all money expenditures (MV) always equals the actual total value of all items sold (PT).

What does MV PY mean?

MV = PY. M = money supply, V = velocity of money, P = price level, Y = real GDP.