JAMB Economics 2019 Paper

Concept:The second equation of exchange refers to the Cambridge cash-balance approach to the quantity theory of money.Explanation:It states that the price level depends on the stock of money, the proportion of income held as cash, and real income.The equation is expressed as $P = \frac{M}{KR}$.Where:$P$ = price level of consumer goods$M$ = stock of money$K$ = proportion of total income kept in money form$R$ = real incomeThis shows that the price level is directly related to the money supply but inversely related to real income and the cash-holding proportion.Answer:B. $P = \frac{M}{KR}$