This equation MV=PQ is an identity equation, and is called the equation of exchange. It was then transformed into a theoretical economic model by making some assumptions. This is called the quantity theory of money. The Quantity theory of money: It explains the direct relationship between money supply and the price level in the economy.
M=M1, stock of money V= Income (GDP) velocity of circulation or average number of times $1 is spent on final goods and services in a particular time period. P=Average price level of.
11/16/2010 · The equation of exchange is MV = PQ , where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of real goods sold. Currently, the quantity of money is $500, the velocity of money is 4, and the amount of real output is equal to $400. 4.2. Nominal GDP equals : A. $5 B. $400 C. $500 D. $2,000, Using the quantity equation of money MV = PQ , calculate the money supply (M) if velocity (V) equals 2, the price level (P) equals 105, and real GDP (Q) equals 240.
MV = PQ answers. MV = PQ where M = money supply, V = velocity. P= Price(general price level) Q= output/Real GDP. M . ?. P . Any change in money supply will result in a proportionate change to the price level. Assuming V and Q are constant. If other factors are going to change others will likely not change. Underutilised resources i.e. recession …
