(Challenging)Let ÄX Denote a Small Change in the Variable X

question 150

Essay

(Challenging)Let ÄX denote a small change in the variable X.Starting from the quantity equation MV = PY,show that the following relation between percentage changes holds: ÄM / M + ÄV / V = ÄP / P + ÄY / Y.(Note: It should be emphasized that this relationship holds for small changes,say less than 5 percent.The larger the changes,the less precise are the results derived from this relationship.)

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Definitions:

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