Figure 10.1
-In Figure 11.1 if real GDP, Y, were to increase, then

Question

Figure 10.1 
-In Figure 11.1 if real GDP, Y, were to increase, then

Quizplus · Accepted Answer

According to the equation of exchange MV = PY, an increase in Y (real GDP) would lead to an increase in the nominal value of output (PY). To maintain the same level of velocity (V), the demand for money (M) would also need to increase. Therefore, choice B is the correct answer: money demand increases and the price level decreases. Choices A, C, and D are incorrect as they do not reflect the impact of an increase in real GDP on the money market and price level.

Figure 10.1 -In Figure 11.1 If Real GDP, Y, Were to Increase