Case Interview Prep

Category - Economics

In the quantity theory of money, what does the (P) stand for as seen in the equation below?
MV = PY
  1. period
  2. peak
  3. product
  4. price
Explanation
Answer: D - The P stands for Price

Key Takeaway: In the above equation M stands for quantity of money, P is the price level, Y is the aggregate output and V is velocity or the number of times in a year that a dollar is spent on goods and services. The quantity theory of money states that the money supply has a positive relationship with price levels in an economic system. As the money supply increases, price levels increase as well.
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