Assuming that velocity is stable, if real GDP grows by 10 percent this year, and if the money supply does not change this year, how does the price level or nominal GDP change?
A)The price level will not change.
B)Nominal GDP will grow by 10 percent.
C)Nominal GDP will stay the same.
D)The price level will increase by 10 percent.

Question

Quizplus · Accepted Answer

If the money supply is constant and velocity is stable, nominal GDP will stay the same because the increase in real GDP will be offset by a decrease in the price level.

Assuming That Velocity Is Stable, If Real GDP Grows by 10