Praxis II: Economics Content Knowledge Exam Prep

Answer - D - The P stands for price.

Key Takeaway: In the above equation, M stands for quantity of money and 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.