Constant velocity and constant bank credit creation or velocity of money
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Constant Velocity of Money: According to Fisher, the velocity of money (V) is constant and is not influenced by the changes in the quantity of money. The velocity of money depends upon exogenous factors like population, trade activities, habits of the people, interest rate, etc.
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Explanation:
The transactions version of the quantity theory of money was provided by the American economist Irving Fisher in his book- The Purchasing Power of Money (1911). According to Fisher, “Other things remaining unchanged, as the quantity of money in circulation increases, the price level also increases in direct proportion and the value of money decreases and vice versa.The supply of money consists of the quantity of money in existence (M) multiplied by the number of times this money changes hands, i.e., the velocity of money (V). In Fisher’s equation, V is the transactions velocity of money which means the average number of times a unit of money turns over or changes hands to effectuate transactions during a period of time.”.Fisher’s quantity theory is best explained with the help of his famous equation of exchange: MV = PT or P = MV/T