Percentage change in P is approximately equal to the percentage change in:
A) M.
B) M minus percentage change in Y.
C) M minus percentage change in Y plus percentage change in velocity.
D) M minus percentage change in Y minus percentage change in velocity.

Question

Quizplus · Accepted Answer

The Quantity Theory of Money is given by the equation P = MV/Y, where P is the price level, M is the money supply, V is the velocity of money, and Y is real GDP. Taking the percentage change of both sides, we get: %ΔP ≈ %ΔM - %ΔY + %ΔV. Therefore, the percentage change in P is approximately equal to the percentage change in M minus the percentage change in Y plus the percentage change in V.

Percentage Change in P Is Approximately Equal to the Percentage