The equation of exchange determines the supply of money in the economy.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced in the economy. The equation reflects the relationship between the money supply and other economic variables but does not determine the supply of money itself. The supply of money is determined by the central bank through its monetary policy tools.

The Equation of Exchange Determines the Supply of Money in the Economy