If real output and velocity are stable and predictable,then the equation of exchange can be used to derive a simple relationship between
A)the money supply and the price level
B)the money supply and the interest rate
C)the money supply and the foreign exchange rate
D)velocity and real GDP
E)velocity and nominal GDP

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is real output. If Y and V are stable and predictable, we can rearrange the equation to solve for P: P = MV/Y. This shows a simple relationship between the money supply and the price level.

If Real Output and Velocity Are Stable and Predictable,then the Equation