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EQUATION OF EXCHANGE: An equation that specifies the relation between the money supply, the velocity of money, the price level, and real production. The equation is stated as M*V = P*Q, where M is the money supply, V is the velocity, P is the price level, and Q is real production. This equation is a key component of the quantity theory of money, which offers an explanation between the money supply and inflation.

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RESOURCE QUALITY, AGGREGATE SUPPLY DETERMINANT

One of three categories of aggregate supply determinants assumed constant when the short-run or long-run aggregate supply curves are constructed, and which shifts both aggregate supply curves when it changes. An increase in a resource quality causes an increase (rightward shift) of both aggregate supply curves. A decrease in a resource quality causes a decrease (leftward shift) of both aggregate supply curves. The other two categories of aggregate supply determinants are resource quantity and resource price. Specific determinants falling into this general category include education and technology. Anything affecting the quality of labor, capital, land, and entrepreneurship is also included.

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