money equation

[bin_english]

i really do not get the import of this equation MV=PY and how the various constituents affect each other (ie the relationship). cam someone please elaborate.

 

[S2000magician]

Do an example:

• Y = 36; the economy produces 36 goods during the year
• P = 10; each good costs $10
• M = 90; there are 90 one-dollar bills in circulation
• V = 4; each dollar bill is spent, on average, 4 times during the year

Now start fiddling:

• If M increases to 120 one-dollar bills in circulation, then:
  • Output might increase to 48 goods, at the same price level, with the same velocity
  • P might increase to $13.33 per good, at the same output level, with the same velocity
  • V might drop to 3 times per year, at the same output level and price level

You can try fiddling with the other variables.

 

[bin_english]

thanks. you really simpliy the complicated

 

[S2000magician]

I try.