Share This Article:

Economic Definition of equation of exchange. Defined.

Offline Version: PDF

Term equation of exchange Definition: An equation that specifies the relation between the money supply, the velocity of money, the price level, and real production. The equation is stated as M*V = P*Q, where M is the money supply, V is the velocity, P is the price level, and Q is real production. This equation is a key component of the quantity theory of money, which offers an explanation between the money supply and inflation.


« equality standard | equilibrium price »


Alphabetical Reference to Over 2,000 Economic Terms