The identity that expresses the quantity theory of money is:
A) money supply × money velocity = average price × quantity of goods and services.
B) money supply + money velocity = average price - quantity of goods and services.
C) money supply - money velocity = average price - quantity of goods and services.
D) money supply ÷ money velocity = average price ÷ quantity of goods and services.

Question

Quizplus · Accepted Answer

The quantity theory of money states that the price level is directly proportional to the money supply and the velocity of money (the rate at which money changes hands in the economy). This can be expressed as M x V = P x Y, where M is the money supply, V is the velocity of money, P is the average price level, and Y is the quantity of goods and services produced in the economy. Therefore, the identity that expresses the quantity theory of money is A) money supply × money velocity = average price × quantity of goods and services.

The Identity That Expresses the Quantity Theory of Money Is