The quantity equation
A) determines foreign exchange rates.
B) describes the amount of required reserves held in banks.
C) links money, velocity, prices, and real output.
D) links money supply and interest rates.

Question

Quizplus · Accepted Answer

The quantity equation, also known as 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 output. It shows the relationship between these four variables and is used to analyze monetary policy and inflation.

The Quantity Equation