The equation of exchange states that the nominal gross domestic product equals _____
A) the real gross domestic product.
B) the price level.
C) the quantity of money multiplied by the velocity of money.
D) the turnover rate.
E) the demand for money.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the quantity of money, V is the velocity of money (how quickly money changes hands), P is the price level, and Q is the quantity of goods and services produced. Rearranging the equation, we get P = MV/Q, which states that the price level is equal to the quantity of money multiplied by the velocity of money, divided by the quantity of goods and services produced. Therefore, nominal gross domestic product (which is calculated using the price level and quantity of goods and services produced) equals the quantity of money multiplied by the velocity of money.

The Equation of Exchange States That the Nominal Gross Domestic