In an economy in which velocity is constant and real output grows at an average rate of 3 percent per year, a 5 percent average rate of growth in the money supply would result in a
A)constant price level
B)slowly increasing price level
C)slowly decreasing price level
D)stable 4 percent growth in real GDP
E)stable 4 percent growth in nominal GDP

Question

Quizplus · Accepted Answer

With constant velocity and real output growing at 3%, a 5% growth in the money supply would lead to a 2% increase in the price level, as per the quantity theory of money (MV=PY).

In an Economy in Which Velocity Is Constant and Real