If the equation of exchange was expressed for all transactions in the economy instead of real output, all other factors constant, the velocity of money would:

Question

Quizplus · Accepted Answer

The equation of exchange states that MV = PQ, where M represents the money supply, V represents the velocity of money, P represents the price level, and Q represents the level of real output. If the equation is expressed for all transactions in the economy instead of real output, then the level of Q will not change, but the level of P will increase to reflect all transactions. Therefore, V will increase to maintain the equality of the equation.

If the Equation of Exchange Was Expressed for All Transactions