Using the equation of exchange, if velocity is stable in the long run, the inflation rate, (%∆P) Jcan be expressed as
A) %∆P = %∆M ÷ %∆Y
B) %∆P = %∆M + %∆Y
C) %∆P = %∆M *%∆Y
D) %∆P = %∆M - %∆Y

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY. If velocity (V) is stable, then %∆M = %∆P + %∆Y. Rearranging gives %∆P = %∆M - %∆Y.

Using the Equation of Exchange, If Velocity Is Stable in the Long