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 much does the price level change by?
A)-10 percent
B)-9 percent
C)9 percent
D)10 percent

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if velocity is stable and the money supply does not change, then a 10 percent increase in real GDP would lead to a 10 percent decrease in the price level to maintain the equation MV = PY.

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