Asked by Nicole Hoskins on May 25, 2024
Verified
For the equation of exchange to remain in balance
A) changes in P must equal the combined change in M and V.
B) changes in P must equal changes in V.
C) changes in Q must equal changes in M.
D) the equation does not have to balance.
Equation of Exchange
A fundamental equation in monetary economics reflecting the relationship between money supply, its velocity, price level, and an index of expenditures.
Changes in P
Variations in price levels over time, which can indicate inflation or deflation within an economy.
Changes in V
Variations in the velocity of money, indicating how fast money is circulating in the economy and affecting inflation and economic activity.
- Comprehend the equation of exchange and its components (MV=PQ).
Verified Answer
SC
Sisters ChannelMay 29, 2024
Final Answer :
A
Explanation :
According to the equation of exchange, MV = PQ. This means that changes in the money supply (M) and the velocity of money (V) will have an impact on the price level (P) and the quantity of goods and services exchanged (Q). In order for the equation to remain in balance, changes in P must equal the combined change in M and V. If changes in P do not equal the combined change in M and V, the equation will not be in balance.
Learning Objectives
- Comprehend the equation of exchange and its components (MV=PQ).