Which of the following correctly illustrates the quantity theory of money?
A) velocity of money × price level = money supply × real GDP
B) money supply × velocity of money = real GDP × price level
C) (money supply - velocity of money) = (price level - real GDP)
D) money supply/velocity of money = price level/real GDP

Question

Quizplus · Accepted Answer

The quantity theory of money is represented by the equation MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is real GDP. This equation is correctly illustrated by choice B, which states that the money supply multiplied by the velocity of money equals real GDP multiplied by the price level.

Which of the Following Correctly Illustrates the Quantity Theory of Money