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Quantity Equation

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Quantity Equation 

An equation which relates the quantity of money, the velocity of money, and the dollar value of the economy's output of goods and services.

Principles of Macroeconomics 4th Edition by Mankiw, Kneebone, McKenzie and Rowe p.247 

 

 The quantity equation of money is M x V = P x Y where: M is the quantity of money, V is the velocity of money, P is the price of output and Y is the total amount of output.

 

Because the velocity of money is relatively stable, when the central bank changes the quantity of money (M), it causes proportional changes in the nominal value of output (P x Y).


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