In the equation MV = PT; V stand for

Step 1: Analyze the question The equation MV = PT is the Fisher Equation of Exchange, used in the Quantity Theory of Money. You are asked what the letter V stands for.

Step 2: Explain the concept Irving Fisher's equation links the money supply to the price level:

• M = money supply (the quantity of money in circulation)
• V = velocity of circulation of money (the average number of times a unit of money changes hands in a given period)
• P = price level (average price)
• T = total volume of transactions (the number of goods and services traded)

Step 3: Work through it

• The left side, MV, is the total money spent in the economy. It is the money stock multiplied by how often each naira is spent.
• The right side, PT, is the total value of the goods and services sold. It is the price level multiplied by the volume of transactions.
• These two sides must be equal, because every naira spent is received by a seller.

Checking the options:

• A. Velocity of circulation of money: correct, this is what V means.
• B. Velocity of price change: no such term exists in this equation.
• C. Volume of goods produced: this is closer to Q or Y in other versions of the equation.
• D. Volume of money: this is M.
• E. Volume of transaction: this is T.

Step 4: Answer V stands for the velocity of circulation of money, which is option A.

Tip: Remember the pairs: Money and Velocity on the left, Price and Transactions on the right. A sentence to help: "Money Visits, Prices Trade." If you see MV = PT, the V is always velocity, which means how fast money moves around.