Quantity Theory of Money
Also called: MV=PY, equation of exchange
The quantity theory holds that money supply times velocity equals price level times real output, so if velocity and output are stable, money growth translates directly into inflation. It is a near-perfect description of hyperinflations and a poor short-run guide in normal times, because velocity is not stable. Its lasting contribution is the insight that sustained inflation is always ultimately a monetary phenomenon.
Formula
M × V = P × Y
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