Download
1 / 2
20 likes | 136 Vues
This document explores the Quantity Theory of Money, emphasizing the equation of exchange: MV = PQ. Here, M represents the Money Supply, V is the Velocity of Money, P indicates the Average Price Level, and Q stands for Real GDP. The theory posits a relationship between money, price, and real output, illustrating how changes in money supply affect price levels when the velocity of money is assumed to be stable. It is vital to understand that if the money supply increases more than the economy's output, it results in higher price levels to maintain equilibrium.
E N D
March 28, 2014 • Collect Current Event • Notes: Quantity Theory of Money • Unit 3 Practice MC Q’s
The Quantity Theory of Money • The relationship among money, price, and real output can be represented by the equation of exchange. • MV = PQ • M = The Money Supply • V = The Velocity of Money (The rate at which money is exchanged from one transaction to another- measures the rate at which money in circulation is used for purchasing goods and services.) • Assume velocity is stable over time. • P= The Average Price Level • Q= Real GDP (real value of all final goods and services) • This equation shows the balance between money and goods/services • For a given level of V, if M increases more than Q then there must be an increase in P to keep the two sides equal.
