2 The quantity equation The quantity equation MxV=PxY -assumes V is constant exogenous,the quantity equation can be written as MxV=PXY MP=real money balances,the purchasing power of the money supply. M/P=y/v CHAPTER 7 Money and Inflation slide 16CHAPTER 7 Money and Inflation slide 16 The quantity equation ▪ The quantity equation M V = P Y ▪ assumes V is constant & exogenous, the quantity equation can be written as ▪ M/P = real money balances, the purchasing power of the money supply. M/P =y/v M V P Y = 2