The quantity theory equation of exchange states
A) supply = demand.
B) GDP = Q × P.
C) M × V = P × Q.
D) M = P × Q.

Question

Quizplus · Accepted Answer

The quantity theory of money is represented by the equation of exchange, which is M × V = P × Q. In this equation, M represents the money supply, V represents the velocity of money (the number of times a unit of currency is spent), P represents the price level, and Q represents the quantity of goods and services produced. The equation shows that an increase in the money supply (M) or velocity (V) will result in an increase in prices (P) or quantity of goods and services (Q). Therefore, choice C is the correct answer as it reflects the quantity theory equation of exchange.

The Quantity Theory Equation of Exchange States