If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real GDP must be ______ percent.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, MV = PY, where M is the money supply, V is velocity, P is the price level, and Y is real GDP. If M increases by 12%, V decreases by 4%, and P increases by 5%, then Y must increase by 3% to balance the equation.

If the Money Supply Increases 12 Percent, Velocity Decreases 4