Mv = Pq ? What Is It ?

M —> money supply : sum total of all of the currency and other liquid assets in a country's economy

V —> velocity : a measurement of the rate at which money is exchanged in an economy

= Gross Domestic Product (GDP) / Money Supply.

P —> price of goods and services

Q —> quantity of good services

Relation

The speed of circulation of the V currency is constant. The same goes for the level of production Q, which is supposed to be constant because of the situation of full employment of the factors of production in the economy. According to these two assumptions, any increase in the amount of currency M leads to an increase in P prices.