The equation of exchange states that the quantity of money
A) multiplied by nominal GDP equals the price level.
B) divided by nominal GDP equals real GDP.
C) multiplied by the velocity of circulation equals nominal GDP.
D) divided by price level equals real GDP.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the quantity of money, V is the velocity of circulation, P is the price level, and Q is the real GDP. Solving for PQ, we get PQ = MV. Therefore, the quantity of money multiplied by the velocity of circulation equals nominal GDP.

The Equation of Exchange States That the Quantity of Money