LA-8Name- Ali PanjvaniID- 2019092635Subject- MacroeconomicsProfessor Imran Aziz1)The equation of exchange is an economic identity which shows the relationshipbetween money supply, money velocity, price level and expenditure index. The totalsum of money changing hands in the economy will always be equal to the total valueof money in goods and services changing hands in the market.The Equation of Exchange discusses the relationship between the amount of moneyand price, and between money and nominal GDP.The equation simply states:M x V = P x YWhere M = the money supply, usually the M1V = the velocity of moneyP = the price levelY = real output, or real GDP.Velocity is the number of times the average dollar is spent to buy final goods andservices in a given year.Velocity can be calculated by using V = (P x Y ) / MThe equation tells us that total spending (M x V) is equal to total sales revenue (P x
