The equation of exchange
A) cannot be used in an economy with inflation.
B) becomes the quantity theory if velocity and the price level are constant.
C) is MV = PY.
D) All of the above answers are correct.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is real output. This equation can be used to understand the relationship between changes in these variables. It becomes the quantity theory if velocity and the price level are constant. The equation can be used in an economy with inflation, as it illuminates the factors that contribute to changes in the price level. Therefore, the correct choice is C.

The Equation of Exchange