Irving Fisher Derived the Quantity Theory of Money from the Equation

question 66

Essay

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?

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Definitions:

Market Risk Premium

The additional profit that an investor predicts they will earn from a risky market portfolio as opposed to risk-free financial instruments.

Expected Return

The anticipated average return on an investment, taking into account all potential outcomes and their probabilities.

Probability

The measure of the likelihood that an event will occur, quantified as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Return Percentage

The amount of gain or loss on an investment over a specified period, presented as a percentage of the investment's initial cost.