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March 28, 2014

March 28, 2014. Collect Current Event Notes: Quantity Theory of Money Unit 3 Practice MC Q’s. The Quantity Theory of Money. The relationship among money, price, and real output can be represented by the equation of exchange. MV = PQ M = The Money Supply

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March 28, 2014

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  1. March 28, 2014 • Collect Current Event • Notes: Quantity Theory of Money • Unit 3 Practice MC Q’s

  2. The Quantity Theory of Money • The relationship among money, price, and real output can be represented by the equation of exchange. • MV = PQ • M = The Money Supply • V = The Velocity of Money (The rate at which money is exchanged from one transaction to another- measures the rate at which money in circulation is used for purchasing goods and services.) • Assume velocity is stable over time. • P= The Average Price Level • Q= Real GDP (real value of all final goods and services) • This equation shows the balance between money and goods/services • For a given level of V, if M increases more than Q then there must be an increase in P to keep the two sides equal.

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