Netherlands Antilles Map for ) A useful equation in monetary theory is the transformation of the equation of exchange from its static form as stated above into a dynamic form using percent changes or growth rates: percentDM + percentDV … percentDP + percentDY where percentDM is the growth rate of the money supply, percentDV is the rate of change of velocity, percent DP is the rate of inflation and percentDY is the rate of growth of real output. The equation is useful because it shows that if velocity is constant, then the rate of growth of the money supply determines the rate of growth of nominal GDP (PY) and if Y is determined by non-monetary factors, the rate of inflation is equal to the rate of growth of money supply. In the quantity theory of money, it is usually accepted that money is important in the short run but not in the long run (unless it is accelerating inflation and especially hyperinflation). Money affects real factors in the short run but usually does not affect real variables in the long run. Changes in the supply of money have been identified with creating the business cycle, major RECESSIONs, and even the Great DEPRESSION (although it is unlikely that changes in the money supply created the Great Depression, it certainly aggravated the situation). The Cambridge version of the quantity theory turns the equation of exchange in demand for money. The equation: M = kPY where k is now equal to 1/V and is simply the fraction of nominal income that people wish to hold as money balances. Netherlands Antilles Map 2016.