CA Foundation · Business Economics · Money Market
In the Fisher quantity theory of money, MV = PT. In an economy, the money supply M is ₹4,000 crore, velocity V is 5 and the volume of transactions T is 2,000 units. What is the price level P?
The price level is 10. Using Fisher's equation, MV equals 4,000 multiplied by 5, which is 20,000. Dividing by transactions of 2,000 gives P as 10. Checking, 10 times 2,000 returns 20,000, matching total money spending in the economy.
- A₹10 per unitCorrect
- B₹2.5 per unit
- C₹40 per unit
- D₹0.1 per unit
Explanation
MV = 4,000 × 5 = ₹20,000 crore. P = MV / T = 20,000 / 2,000 = 10 (units consistent in crore terms). Check: 10 × 2,000 = 20,000, which equals MV. Choosing 2.5 comes from dividing M by T and ignoring V.
Did you get it right without looking?
One question tells you little. A timed set on Money Market shows your real accuracy, how long you take and where you lose marks.
More Money Market questions
- Which of the following actions by the RBI would, other things remaining equal, tend to reduce the money multiplier?
- Which of the following best explains why the money market is said to provide a reasonable return to investors with temporary surplus funds w…
- In a simple model, the public holds currency equal to 20% of deposits (c = 0.20) and banks hold reserves equal to 10% of deposits (r = 0.10)…
- Which of the following is a function of the money market that directly helps the central bank in implementing monetary policy?
- Suppose the RBI wants to curb inflation caused by excess demand in the economy. Which combination of quantitative policy actions would be mo…
- A firm invests ₹9,80,000 in a 91-day instrument sold at a discount and redeemed at ₹10,00,000. Using a 365-day year and simple interest on t…