Chapter 6 complete

Fisher’s extension of equation of exchange: The Fisher’s equation of exchange, MV = PQ 
is also called Cash Transaction because this equation is based on the function of money as 
medium of exchange and it includes only primary money or currency money that is cash. It 
does not include bank deposit money or credit money. Fisher himself has incorporated bank 
deposit, M’ and V’ in his equation of exchange. After incorporating M’ and V’ in MV = PQ, 
we would have 
MV + M’V’ = PQ
P = 
’ ’
6.6 
Fisher states that other things (such as V, M’, V’ and Q) remaining constant then P will 
change in direct proportionate to M. Thus, Fisher established a direct and proportionate 
relationship between the changes in the quantity of money and the resultant price level.