Equation of exchange
Description
Monetarists assert that the empirical study of monetary history shows that inflation has always been a monetary phenomenon. The quantity theory of money, simply stated, says that any change in the amount of money in a system will change the price level. The general price level is related to the level of real economic activity , the quantity of money and the velocity of money.
Related formulasVariables
M | Total nominal amount of money in circulation (dimensionless) |
V | Velocity of money (the average frequency with which a unit of money is spent) (dimensionless) |
P | Price level (dimensionless) |
Q | Index of the real value of final expenditures (dimensionless) |