Investopedia

Continue to Site »

Equation Of Exchange

Filed Under » , , ,
Dictionary Says

Definition of 'Equation Of Exchange'

An economic equation that showcases the relationship between money supply, velocity of money, the price level and an index of expenditures. The equation was derived by John Stuart Mill, and based of the early ideas of David Hume. The equation of exchange is as follows:

Equation Of Exchange

Where:
M = money supply
V = velocity of money
P = average price level of goods
T = index of expenditures (such as the total number of economic transactions)
Investopedia Says

Investopedia explains 'Equation Of Exchange'

The equation of exchange has two primary uses. It represents a founding principle used by the quantity theory of money, which relates increases in the money supply to increases in the overall level of prices. Additionally, solving the equation for 'M' can serve as an indicator of the demand for money.

Articles Of Interest

  1.

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.

  2. What Is the Quantity Theory of Money?

    Take a look at the tenets, assumptions and challenges of monetarism's principal theory.

  3. What Is Fiscal Policy?

    Learn how governments adjust taxes and government spending to moderate the economy.

  4. Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.

  5. Why The Consumer Price Index Is Controversial

    Find out why economists are torn about how to calculate inflation.

  6. Predict Inflation With The Producer Price Index

    Find out how the PPI can be used to gauge the overall health of the economy.

  7. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  8. Austerity: When The Government Tightens Its Belt

    When a government tightens its belt in tough economic times the entire nation feels the squeeze.

  9. Will Quantitative Easing Be Japan's Savior?

    The quantitative easing program, recently announced by the new governor of the Bank of Japan, Haruhiko Kuroda, is for a cash infusion of $1.4 trillion by the end of 2014. Will it help the Japanese ...

  10. Inspecting A Country's Debt

    Tensions over just how to handle debt are pitting the rich world against the developing world like never before.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Cost-Push Inflation

    A phenomenon in which the general price levels rise (inflation) due to increases in the cost of wages and raw materials.

  2. Happiness Economics

    The formal academic study of the relationship between individual satisfaction and economic issues, such as employment and wealth.

  3. Affluenza

    A social condition arising from the desire to be more wealthy, successful or to "keep up with the Joneses." Affluenza is symptomatic of a culture that holds up financial success as one of the highest achievements.

  4. Icarus Factor

    The term Icarus factor describes a situation where managers or executives initiate an overly ambitious project which then fails. Fueled by excitement for the project, the executives are unable to reign in their misguided enthusiasm before it is too late to avoid the failure.

  5. Angelina Jolie Stock Index

    An index made up of a selection of stocks from companies associated with actress Angela Jolie.

  6. Consequential Loss

    The amount of loss incurred as a result of being unable to use business property or equipment.
Trading Center