If M stands for the money supply, V for the velocity of money, P for the average selling price, and Q for the output of goods and services, the equation of exchange is:
A) MP = VQ.
B) MV = PQ.
C) MQ = VP.
D) MP = PQ.

Question

Quizplus · Accepted Answer

This equation, known as the Quantity Theory of Money, states that the product of the money supply (M) and the velocity of money (V) must equal the product of the average price level (P) and the quantity of output (Q). Therefore, the correct equation of exchange is MV = PQ.

If M Stands for the Money Supply, V for the Velocity