The equation of exchange states that:
A) money supply multiplied by real output equals velocity.
B) velocity multiplied by money supply equals the selling price times the quantity of actual output.
C) money supply divided by velocity equals nominal GDP.
D) money supply divided by velocity equals real GDP.

Question

Quizplus · Accepted Answer

The equation of exchange is represented as 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 (real output). This equation states that the product of the money supply and its velocity equals the product of the price level and the quantity of actual output, which aligns with choice B.

The Equation of Exchange States That