 ##### Asked by: Dorthe Ojeda
asked in category: General Last Updated: 25th May, 2020

# What does the quantity equation show?

A popular identity defined by Irving Fisher is the quantity equation commonly used to describe the relationship between the money stock and aggregate expenditure: MV = PY. The terms on the right-hand side represent the price level (P) and Real GDP (Y).

In respect to this, what is the formula for the quantity theory of money?

Definition: Quantity theory of money states that money supply and price level in an economy are in direct proportion to one another. When there is a change in the supply of money, there is a proportional change in the price level and vice-versa.

Also, what is an important message of the quantity theory of money? (Learn how and when to remove this template message) In monetary economics, the quantity theory of money (QTM) states that the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply.

Beside above, how do you calculate quantity of money?

It is calculated by dividing nominal spending by the money supply, which is the total stock of money in the economy: velocity of money = nominal spending money supply = nominal GDP money supply . If the velocity is high, then for each dollar, the economy produces a large amount of nominal GDP.

What does MV PY mean?

money supply

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