What is the equation of exchange? What are the variables, which are in it, and how do they relate to each other?
The equation of exchange can be written as M V = P Q where M = money supply, V = velocity (the speed at which money circulates in the economy), P = the price level of GDP, and Q = the level of real GDP. P Q, therefore, is nominal GDP.
As written, the equation is an accounting identity, and embodies no economic theory. When assumptions are made regarding how variables act or react, the equation of exchange can become the basis for economic theory.
You might also like to view...
Refer to Table 2.3. The principle of diminishing returns first occurs when how many workers are hired?
A) 2 B) 3 C) 4 D) 5
The U.S. demand for foreign cars has increased dramatically since the early 1900s because
(a) Americans perceive foreign cars as lower quality cars than U.S.-produced cars. (b) foreign producers are manufacturing relatively fuel-efficient cars. (c) U.S. consumer demand for large, fuel inefficient cars has increased. (d) of all of the above reasons.
.If the supply of a good decreased, what would be the effect on the equilibrium price and quantity?
What will be an ideal response?
Which of the following is true?
A. The merger between Exxon and Mobil was subject to antitrust regulation by the U.S. Justice Department, but not by the European Commission. B. Antitrust today could best be summed up by the 90 percent rule. C. In the 1950s and 1960s the predominant types of mergers were of the conglomerate variety. D. When two firms in the same industry form one larger company it is called a vertical merger.