What are the basic assumption of the quantity theory of money?

The quantity theory of money is based on certain assumptions—”other things remaining the same”. It assumes that V is constant and is not affected by the changes in the quantity of money (M) or the price level (P).Click to see full answer. Just so, what is quantity theory of money formula? Definition of ‘Quantity Theory Of Money’ When there is a change in the supply of money, there is a proportional change in the price level and vice-versa. It is supported and calculated by using the Fisher Equation on Quantity Theory of Money. M*V= P*T. where, M = Money supply.Subsequently, question is, what is Friedman’s quantity theory of money? In Friedman’s modern quantity theory of money, the supply of money is independent of demand for money. The people will spend this excess money partly on consumer goods and partly by purchasing assets. This spending will reduce their cash balances and at the same time there is a rise in the national income. Also to know, why is the quantity theory of money important? It takes more bills to purchase goods and services, and thus the price level increases accordingly. The quantity theory of money is based directly on the changes brought about by an increase in the money supply. The quantity theory of money states that the value of money is based on the amount of money in the economy.What is quantity equation?Quick Reference. The equation MV = PT relating the price level and the quantity of money. Here M is the quantity of money, V is the velocity of circulation, P is the price level, and T is the volume of transactions. The quantity equation is the basis for the quantity theory of money.