The equation of exchange in terms of growth rate is
A)Inflation rate = Real GDP growth rate.
B)Money growth rate - Rate of velocity change = Inflation rate + Real GDP growth rate.
C)Inflation rate = Money growth rate + Rate of velocity change + Real GDP growth rate.
D)Money growth rate = Inflation rate - Real GDP growth rate.
E)Money growth rate + Rate of velocity change = Inflation rate + Real GDP growth rate.

Question

Quizplus · Accepted Answer

The equation of exchange in terms of growth rate is represented as M * V = P * Y, where M stands for the money supply, V for the velocity of money, P for the price level, and Y for real GDP. Taking the percentage change of each variable, we get the equation: %change in M + %change in V = %change in P + %change in Y. Rearranging the equation, we get %change in M + %change in V - %change in Y = %change in P. This is the same as saying Money growth rate + Rate of velocity change = Inflation rate + Real GDP growth rate. Therefore, the best answer is E.

The Equation of Exchange in Terms of Growth Rate Is