When you get your answer, please put it in terms those of us that skippped those classes will understand.
I will try to put this in terms that others who skipped these classes will understand. The equation MV=PQ is actually an accounting identity, which means that it must hold by definition, everywhere and always.
M refers to the stock of money in circulation.
V for “velocity” refers to the number of times each year that this money changes hands.
P represents a price index or some other measure of prices.
Q denotes real output, or GDP.
As an example, suppose that the economy produces 100 units of real output each year. The price level is $1 per unit of output. If there are $10 in circulation, what must the velocity of money be? Answer below ...
V = 10 times/year
The velocity of money changes but trends upward over time, as our financial system becomes more efficient (less cash in our wallets, money deposited faster, etc). The velocity of money tends to be high in inflationary periods, because people don’t want to hold more cash than necessary as it depreciates in value. During periods such as we are in right now, with a “rush to liquidity,” velocity tends to fall ... I think. I guess that’s what I’m asking.
It is an exceedingly important variable to monetarists, and for obvious reasons. In his later years, Milton Friedman downplayed just a bit some of the extraordinary emphasis he put on this equation as a policy guide. But he never ever downplayed its significance, to my knowledge, as a way to frame monetary issues.
Further thoughts, any one?