Answer:
The correct answer is option D.
Explanation:
Irving Fisher gave the equation of quantity theory of money. This equation is thus also called the Fisher's equation. It can be stated as MV=PT.
Here, M is the money supply, V is the velocity of money circulation, P represents the price level, and T is the volume of transactions. V and T are assumed to be constant. On the basis of this assumption, we can say that there is a direct relationship between money supply and price level. Ā
The velocity of circulation is assumed to be constant, this assumption is equivalent to constant demand for real balances per unit. Velocity shows the number of times a currency changes hands. Constant velocity means money is not changing hands, people are holding money, or in other words, demand for real balances is constant.
