Mv=py is the quantity equation used in the theory of money quantity. This belongs to the theory of money quantity: the theory of money quantity is a theory about the relationship between money quantity and price level. The quantity theory of money uses the quantity equation as an analytical tool. Quantitative equation: mv = pt, where m is the amount of money in circulation, v is the speed of money circulation, p is the overall price level, and t is the total amount of social transactions. If y stands for real GDP, p stands for GDP deflator and PY stands for nominal GDP, then the quantity equation is: mv = py.

Hypothesis of monetary quantity theory:

If the speed of money circulation is not constant, the change of money quantity m will inevitably lead to the same proportion of nominal GDP. The theory of money quantity further holds that the factors of production and the production function jointly determine the real GDP, so the theory of money quantity means that the price level changes directly with the money supply, that is, the money growth rate determines the inflation rate.