# Barter equation

The barter equation is an equation that explains the relationship between money supply and price levels. The barter equation looks as follows:

MV = PQ

where

M = Money

V = Velocity of circulation

P = Price

Q = Quantity

If the money supply increases and everything else is assumed to be the
same, the price will increase if the quantity is constant. The barter equation shows why inflation and deflation occurs. The barter equation is a simplified model of reality.

Updated

4/25/2013

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barter equation, macro theory, economics