The equation of exchange specifies that

Question

Quizplus · Accepted Answer

The equation of exchange, also known as the quantity theory of money, is represented as MV = PY, where M represents the money supply, V represents velocity of money, P represents price level, and Y represents real output. So, option A, MsV = PY is the correct representation. Option B is wrong as while velocity of money and money supply have a relation, it's an inverse relationship. Option C is close but wrong, as it transposes the V and P. Option D is incorrect too, as it multiplies P, V and Y with M, making it a mixture of the equation of exchange and some other models.

The Equation of Exchange Specifies That