The equation of exchange applies only in the short run.

Question

Quizplus · Accepted Answer

The equation of exchange (MV=PQ) applies in both the short and long run in a general sense, but there are nuances to the factors that affect each variable in the equation over time. In the short run, changes in velocity and real output (Q) are less likely to occur, so changes in the money supply (M) are more likely to affect prices (P) in the short term. In the long run, changes in real output (due to productivity or population growth) can affect prices, and changes in the money supply may have less of an impact on price levels.

The Equation of Exchange Applies Only in the Short Run