Classical Quantity Theory of Money

Classical Quantity Theory of Money

Classical economists saw money’s role only as a medium of
exchange.
The relationship between transactions and money is expressed in
the following identity, called the quantity theory of money.
MV= PY

It relates the nominal money supply (M) and income velocity of
money (V) to the price level (P) and real GDP (Y ).


Fisher viewed velocity as constant in the short run. This is because
velocity is affected by institutions and technology that change
slowly over time.