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Author Question: What is the equation of exchange? What are the variables, which are in it, and how do they relate to ... (Read 61 times)

geodog55

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on: Jun 30, 2018
What is the equation of exchange? What are the variables, which are in it, and how do they relate to each other?

Question 2

Societies in which _____ produce more entrepreneurs.
 a. the ratio of immigrants to the local population is high
  b. culture supports individual achievements
  c. individuals are self-interested
  d. immigrants are allowed to hold government positions
  e. immigrants are more intelligent than the local population


Missbam101

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Reply #1 on: Jun 30, 2018
Answer to Question 1

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.

Answer to Question 2

b


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