The relationship between money and nominal GDP in the economy is summarized by
A)the money multiplier.
B)the quantity equation of money.
C)the money supply equation.
D)the budget constraint.
E)the Phillips curve.

Question

Quizplus · Accepted Answer

The quantity equation of money, also known as the equation of exchange, states that MV = PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. This equation shows the relationship between money and nominal GDP, suggesting that an increase in the money supply will lead to a proportionate increase in nominal GDP.

The Relationship Between Money and Nominal GDP in the Economy