The equation of exchange states that the quantity of money multiplied by the velocity of money equals:
A)real Gross Domestic Product.
B)the price level.
C)nominal Gross Domestic Product.
D)the turnover rate.
E)the demand for money.

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PQ, where M is the quantity of money, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced. Solving for PQ, we get PQ = MV. This means that the product of the price level and the quantity of goods and services produced, or nominal GDP, is equal to the product of the quantity of money and the velocity of money.

The Equation of Exchange States That the Quantity of Money