Which arrangement of the quantity theory of money expresses the equation M×V=P×Y?

Which arrangement of the quantity theory of money expresses the equation M×V=P×Y?

• A. PxY=MxV
• B. MxV=PxY
• C. MxP=VxY
• D. YxV=PxM

Answer: (C)

The main idea is the equation of exchange: money supply times velocity (M×V) equals the price level times real output (P×Y). It’s an identity, meaning the two sides are always the same quantity, just expressed with the same products in a different form. The form that expresses MV = PY is the one with M×V on one side and P×Y on the other. In other words, money supply times how often money circulates equals price level times real output. The other rearrangements mix the factors (for example, M×P or V×Y on one side). Those do not preserve the original relationship unless you assume extra, unlikely equalities between variables, so they aren’t equivalent to MV = PY.

The main idea is the equation of exchange: money supply times velocity (M×V) equals the price level times real output (P×Y). It’s an identity, meaning the two sides are always the same quantity, just expressed with the same products in a different form.

The form that expresses MV = PY is the one with M×V on one side and P×Y on the other. In other words, money supply times how often money circulates equals price level times real output.

The other rearrangements mix the factors (for example, M×P or V×Y on one side). Those do not preserve the original relationship unless you assume extra, unlikely equalities between variables, so they aren’t equivalent to MV = PY.