The equation of exchange (MV = PQ) is an identity that shows how changes in the quantity of money (M), its velocity (V), and average price level (P) influence nominal GDP (Q).
Related terms
Quantity theory of money: A theory that suggests changes in money supply directly affect prices and inflation in an economy.
Velocity of money: The rate at which money circulates or changes hands within an economy.
Fisher equation: An equation that relates interest rates, inflation, and real interest rates by considering expected inflation.