Equation of exchange

In monetary economics, the equation of exchange is the relation:
M ⋅ V = P ⋅ Q: where, for a given period, M is the total nominal amount of money supply in circulation on average in an economy. V is the velocity of money, that is the average frequency with which a unit of money is spent. P is the price level. Q is an index of real expenditures (on newly produced goods and services). Thus PQ is the level of nominal expenditures. This equation is a rearrangement of the definition of velocity: V = PQ / M. As such, without the introduction of any assumptions, it is a tautology. The quantity theory of money adds assumptions about the money supply, the price level, and the effect of interest rates on velocity to create a theory about the causes of inflation and the effects of monetary policy—Read more at Wikipedia. “Equation of exchange” 22 December 2019