Let ÄX Denote a Small Change in the Variable X

Essay

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.)