Equation of exchange ( in transactions form)


The quantity theory of money, says that any change in the amount of money in a system will change the price level. The equation of exchange is the relation between the nominal quantity of money the velocity of money in final expenditures and the general price level. In earlier analysis before the wide availability of the national income and product accounts, the equation of exchange was more frequently expressed in transactions form.

Related formulas


MTotal nominal amount of money in circulation (dimensionless)
VTThe transactions velocity of money ( the average frequency across all transactions with which a unit of money is spent) (dimensionless)
PPrice level (dimensionless)
T index of the real value of aggregate transactions (dimensionless)