The equation of exchange always holds because
A) the quantity of money is determined by the amount of spending on goods and services.
B) the quantity of money dictates the size of nominal GDP, since money is a social usage.
C) the number of times money is spent to obtain goods and services measures total spending on GDP.
D) MV measures total spending on GDP and PY also measures of total spending on GDP.

Question

Quizplus · Accepted Answer

The equation of exchange, MV = PY, holds because both sides of the equation represent total spending on GDP. M is the money supply, V is the velocity of money, P is the price level, and Y is the real GDP.

The Equation of Exchange Always Holds Because