quantity equation

quantity equation
An equation relating the price level and the quantity of money. The standard formulation of this is MV = PT, where M is the quantity of money, V is the velocity of circulation, P is the price level, and T is the volume of transactions. A standard form of the quantity theory of money urges that at any given time, T is determined by supply-side factors, and V is determined by the legal status and habitual working of monetary institutions, so that the price level P is proportional to the money supply, M.