Which of the following is true of the equation of exchange?
A)It states that the product of the price level and velocity of money is equal to real GDP.
B)It states that aggregate demand in an economy is equal to total investment spending.
C)It states that money supply times velocity of money equals real GDP.
D)It states that velocity of money is equal to the ratio of nominal GDP and money supply.
E)It changes to the quantity theory of money if the price level is assumed to be constant.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the real GDP. Therefore, V = PQ/M, which is the ratio of nominal GDP (PQ) to the money supply (M).

Which of the Following Is True of the Equation of Exchange