Irving Fisher derived the quantity theory of money from the equation of exchange. What two assumptions did he make to derive the theory and what is the basic assertion of the theory?
What will be an ideal response?
The basic assumptions Fisher made are that the %? in real output and the %? in velocity both = 0. With this, he forms the basic assertion that money growth translates directly into inflation since the %?M will have to equal the % ?P and the % ?P is the rate of inflation.
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