Asked by Christina Rodrigue on May 18, 2024
Verified
The equation of exchange
A) is an identity.
B) requires that an increase in nominal GDP must always be accompanied by an increase in the velocity of money.
C) does not apply when the level of unemployment is quite high.
D) holds only if the velocity of circulation of money is a constant.
Equation of Exchange
An economic identity that represents the relationship between the money supply, its velocity, the price level, and the number of transactions conducted, often formulated as MV = PQ.
Identity
The characteristics, attributes, or qualities that make a person or thing unique and distinguishable from others.
Nominal GDP
The value of the final goods and services produced in a given year valued at that year’s prices.
- Achieve an understanding of the equation of exchange and its elements (MV=PQ).
- Explain the concepts of velocity of money and how it impacts the economy.
Verified Answer
BS
Benny SmithMay 20, 2024
Final Answer :
A
Explanation :
The equation of exchange is an identity that relates the money supply, the velocity of money, the price level, and the volume of transactions or output. It does not depend on specific economic conditions such as the level of unemployment or require that the velocity of money be constant.
Learning Objectives
- Achieve an understanding of the equation of exchange and its elements (MV=PQ).
- Explain the concepts of velocity of money and how it impacts the economy.