Which equation expresses the classical relationship among money, velocity, the price level, and real output?

• A. MV = PY
• B. M = P Y V
• C. V = PY / M
• D. P = M / (Y V)

Answer: (A)

The main idea is the quantity equation: money supply times velocity equals price level times real output. In symbols, M times V equals P times Y. This identity links the amount of money in the economy, how fast it circulates, and the economy’s overall spending, which is measured by nominal GDP (P times Y). It’s the standard way economists express how changes in money affect nominal spending, with the classical view keeping real output and money velocity determined by real factors.

This form is the clearest because it directly shows the relationship among the four variables: money supply, velocity, price level, and real output. Another way to write the same thing is by solving for velocity: V = (P Y) / M, which is just an algebraic rearrangement and conveys the same idea. The option that would make money equal to nominal GDP times velocity misstates the identity, and the option that gives P as M divided by YV is not consistent with MV = PY.