The quantity equation is written as
A)MP = YV.
B)MY = PV.
C)MV = PY.
D)M = PYV.
E)MPY = V.

Question

Quizplus · Accepted Answer

The quantity equation, also known as the equation of exchange, is MV = PY. This equation states that the money supply (M) multiplied by its velocity (V) is equal to the price level (P) multiplied by the level of real output or income (Y). Choice A is incorrect because Y is multiplying V instead of being multiplied by it. Choice B is incorrect because P is multiplied by both M and V, which would imply that the price level has to be determined by both the money supply and its velocity. Choice D is incorrect because it only includes M, whereas the equation includes both M and V. Choice E is incorrect because it only includes PY on one side of the equation, whereas the equation includes both PY and MV.

The Quantity Equation Is Written as