The equation of exchange indicates that:
A) MV = PQ.
B) other things equal,an increase in the demand for money will increase P and/or Q.
C) the velocity and the supply of money vary directly with one another.
D) MP = VQ.

Question

Quizplus · Accepted Answer

The equation of exchange, also known as the quantity theory of money, is expressed as MV = PQ, where M is the quantity of money, V is the velocity of money, P is the price level, and Q is the real output of goods and services. This equation shows that the total amount of money spent (MV) must equal the total value of goods and services produced (PQ). Therefore, the correct answer is A. Choices B, C, and D are not supported by the equation of exchange.

The Equation of Exchange Indicates That