The equation of exchange states that the price level is equal to
A) the quantity of money.
B) the velocity of circulation multiplied by the quantity of money divided by real GDP.
C) real GDP multiplied by the velocity of circulation divided by nominal GDP.
D) the velocity of circulation.

Question

Quizplus · Accepted Answer

The equation of exchange is represented as MV = PQ, where M is the quantity of money, V is the velocity of circulation, P is the price level, and Q is real GDP. Rearranging this equation to solve for P (the price level), we get P = MV/Q, which matches the description in choice B.

The Equation of Exchange States That the Price Level Is