# 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 »

**Permalink**: http://glossary.econguru.com/economic-term/equation+of+exchange