- CFA Exams
- CFA Level I Exam
- Study Session 5. Economics (2)
- Reading 16. Monetary and Fiscal Policy
- Subject 1. What is Money?

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**CFA Practice Question**

The equation of exchange hypothesized by the quantity theory of money indicates that ______

II. velocity is equal to money supply divided by nominal GDP.

III. rate of inflation + growth rate of money supply = growth rate of real output + growth rate of velocity.

I. MY = PV

II. velocity is equal to money supply divided by nominal GDP.

III. rate of inflation + growth rate of money supply = growth rate of real output + growth rate of velocity.

A. I only

B. II and III

C. None of these statements is correct.

**Explanation:**The equation of exchange is MV = PY, or: rate of inflation + growth rate of real output = growth rate of money supply + growth rate of velocity.

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**User Contributed Comments**
3

User |
Comment |
---|---|

DashingDude |
Tricky |

shiva5555 |
what does MV and PY stand for? |

cleopatraliao |
MV=(Qty of money*velocity) PY=(Price level*Real GDP) Because GDP=PY and V=PY/M Therefore, the equation of exchange is MV=PY :D |