Using the idea that money supply x velocity = price level x output how does inflation occur?

Question

can someone explain this in the simplest terms

Answer 1

Prices have nothing to do with the cause of inflation. Inflation is an increase in the money supply only. Increased prices is the result of the inflation. Output has nothing to do with it either. Inflation is a term to describe an increase in the money supply which is a debasing, diluting, or devaluing the pre-existing money supply. Price appreciation is the proper term when referring to increasing prices as a result of market forces in supply and demand. Price appreciation is not inflation as the market will balance out the supply demand factor. Why do so many people think that inflation is the rising of prices?

Answer 2

It occurs in case if sum of growth in money supply and velocity is higher than growth in RGDP.

Just rearrange equation from:

M*V=P*Y .[0]

To:

M*V/Y=P .[1]

So in order to keep P constant all factors in left side of equation [1] should offset each other.