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CMA Foundation · Fundamentals of Business Economics and Management · Money and Banking

In the Fisher quantity equation MV = PT, the money supply is ₹800 crore, money circulates 5 times a year and the volume of transactions is 2,000 crore units. What is the price level P (in ₹ per unit)?

The price level is ₹2.00 per unit. Total spending equals money supply times velocity, which is 800 × 5 = ₹4,000 crore. Dividing by the 2,000 crore units of transactions gives P = MV/T = ₹2 per unit under Fisher's equation.

  1. A₹0.50
  2. B₹2.00Correct
  3. C₹8.00
  4. D₹4.00

Explanation

MV = 800 × 5 = ₹4,000 crore. P = MV/T = 4,000/2,000 = ₹2.00. Check: 2 × 2,000 = 4,000. The ₹0.50 option inverts the ratio (T/MV); ₹8 comes from dividing by 500 mistakenly, ignoring velocity.

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