SSC CGL 2024 Tier-I · 19 September 2024, Shift 3 · General Awareness · Question 6 of 99

Text as printed on a candidate's response sheet for this shift; answer per SSC's tentative key as marked on that sheet. Solution last reviewed 6 September 2026.

Where this paper and its answers come from

SSC does not publish CGL question papers or a public answer key. The questions and options here are reproduced as printed on a candidate's own response sheet for this shift — the Commission's text, unchanged. Each answer is SSC's tentative key as marked on that sheet; SSC allowed challenges to it and never publishes a final key. The solutions are written by UnlockIAS.

Which of the following is Fisher's equation of exchange?

Answer

Why

Correct — A. Option (a) is the image MV = PT, Fisher's equation of exchange.

Read it as an identity over one period. M is the quantity of money and V its transactions velocity, how many times a unit changes hands, so MV is total spending.

P is the price level and T the volume of transactions, so PT is the total value of what was bought. Spending must equal receipts, which is why the two sides are equal.

Why the others are wrong

(b)
Option (b) shows M/V = T/P. Cross-multiplying gives MP = VT, not MV = PT, so the terms are paired with the wrong partners.
(c)
Option (c) shows MT = VP. It ties money to transactions and velocity to price, swapping terms across the equals sign, so the identity no longer holds.
(d)
Option (d) shows M = S + I, which is not a monetary identity at all. S and I are the saving and investment terms of national-income accounting.

Concept

Fisher's equation of exchange, MV = PT, is the backbone of the quantity theory of money. Taken literally it is an accounting identity: the money paid over in a period must equal the money value of what was traded.

It becomes a theory once you add assumptions — that V is fixed by payment habits and T by real output.

On those assumptions a change in M has nowhere to go but P, which is the classical claim that inflation is a monetary phenomenon.

The four options are printed as images of formulas, not as text, so there is nothing to skim. You have to read the letters and their positions.

The Cambridge cash-balance version states the same idea as M = kPY, and the income version as MV = PY, with Y real income in place of T. The letters change; the argument does not.

Key facts

Fisher's equation of exchange is MV = PT.
In MV = PT, V is the transactions velocity of money and T is the volume of transactions in the period.
The identity becomes the quantity theory of money only when V and T are assumed constant, making P proportional to M.
The Cambridge cash-balance approach states the same idea as M = kPY.

Study next

The quantity theory of money and the standard objections to itThe Cambridge cash-balance equation and the demand for moneyMeasures of money supply in India: M1, M2, M3 and M4

Common traps

Recognising the four letters but not their pairing, so a rearranged form such as MT = VP slips through.
Reading V as the value of money rather than its velocity.

Related items you can read in the 2024 banks: 23 Sep 2024, 9:00, General Awareness Q.14 asks the year the Flexible Inflation Targeting Framework was introduced, keyed to 2016.

At 25 Sep 2024, 16:00, General Awareness Q.16 the question asks what is NOT correct about the circular flow of income. Learn the identity as letters and as words, because here the options are pictures of formulas.

Related PYQs

No directly related past PYQ was found.