State Fisher’s equation of exchange

Fisher's equation of exchange is a fundamental concept in monetary economics that represents the relationship between the quantity of money in circulation, the velocity of money, the price level, and the level of real transactions in an economy. The equation is named after the American economist Irving Fisher. It is expressed as:

\[ MV = PQ \]

Where:
- \( M \) represents the money supply in an economy,
- \( V \) represents the velocity of money, which measures the rate at which money is exchanged for goods and services in the economy,
- \( P \) represents the price level of goods and services in the economy,
- \( Q \) represents the level of real transactions or the quantity of goods and services exchanged in the economy.

The equation states that the total money supply (\( M \)) multiplied by the velocity of money (\( V \)) is equal to the total nominal expenditures (\( PQ \)) in the economy. In other words, the amount of money in circulation multiplied by how fast it circulates equals the total value of goods and services exchanged.

Fisher's equation of exchange provides insights into the determinants of nominal expenditures and the factors influencing the price level in an economy. It is often used as a basis for analyzing monetary phenomena, such as the effects of changes in the money supply, velocity of money, and real transactions on the overall level of economic activity and inflation.