The equation of exchange is a mathematical equation for the quantity theory of money in economies, which identifies the relationship among the factors of: Money Supply. Velocity of Money. Price Level.
The equation states that the total amount of money that changes hands in an economy will always be equal to the total monetary value of goods and services. that changes hands in an economy. In other words, the amount of nominal spending will always be equal to the amount of nominal income.
The restated equation states that the total amount of money spent within an economy over a specific period is always equal to the total amount of money earned within the same period; or, nominal expenditures are always equal to nominal income. It represents the common expression of the quantity theory of money, ...
The quantity theory of money explains the relationship between price levels and the money supply. The original “neo-quantity theory” states that there is a fixed proportional relationship between the change in the money supply of an economy and the price levels in an economy. This form of the theory was based on the equation derived by economist ...