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Therefore anytime equations may differ depending on money supply and money demand we will just assume that they mean the same thing in that M = M , but only in a equilibrium economy. Lets attempt to assume equilibrium for the ease of the equations at hand. Next we must understand a basic money supply equation, in which the money supply is equal to the price level multiplied by income and that number is then divided by the velocity (or the number of times per year a dollar turns over). The equation would look like this:
M = PY / V
The relationship between money supply (M ) and nominal GDP (PY), should be looked at as either PY is a function of M (or M ) or that Ms is a function of PY...
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