If the transactions velocity of money remains constant while the quantity of money doubles, the:
A) price of the average transaction must double.
B) number of transactions must remain constant.
C) price of the average transaction multiplied by the number of transactions must remain constant.
D) price of the average transaction multiplied by the number of transactions must double.

Question

Quizplus · Accepted Answer

The equation of exchange, 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 transactions, implies that if M doubles and V remains constant, then PQ (the price of the average transaction multiplied by the number of transactions) must also double.

If the Transactions Velocity of Money Remains Constant While the Quantity