If real output and velocity are stable and predictable,then the equation of exchange can be used to derive a simple relationship between:
A)the money supply and the price level.
B)the money supply and the interest rate.
C)the money supply and the foreign exchange rate.
D)unemployment and aggregate demand.
E)unemployment and nominal GDP.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is velocity, P is the price level, and Q is real output. If real output and velocity are stable and predictable, then changes in the money supply will be reflected in changes in the price level. Therefore, the equation of exchange can be used to derive a simple relationship between the money supply and the price level.

If Real Output and Velocity Are Stable and Predictable,then the Equation