Using the quantity equation, the demand for money can be expressed as
A) M = (V * Y) ÷ P.
B) M = (P * Y) ÷ V.
C) M = (P * V) ÷ Y.
D) M * V = (1/ P) V * Y.

Question

Quizplus · Accepted Answer

The quantity equation states that M * V = P * Y, where M represents the nominal amount of money in the economy, V represents the velocity of money (i.e. how quickly it circulates), P represents the price level, and Y represents real output. Rearranging the equation, we get M = (P * Y) / V. This shows that the demand for money (M) is inversely proportional to velocity (V), and directly proportional to both the price level (P) and real output (Y). Thus, the correct expression for the demand for money is M = (P * Y) / V, which corresponds to choice B.

Using the Quantity Equation, the Demand for Money Can Be