Answer to Question #59172 in Macroeconomics for John Rivas

Question

1. Consider this equation for M2 GDP = PQ = MV
A. What is P?
i. List some of the things that make it change
B. What is V?
i. How does it change?

Answer 1

P – price level in the economy
It can be changed due to inflation (increase in an average level of prices).

V – velocity of circulation
It can be changed due to changes in the total nominal amount of money on average in the economy, price level, and aggregate real value of transactions in a given time frame.