Assuming that velocity is stable,if real GDP grows by 20 percent this year,and if the money supply does not change this year,how much does the price level change by?
A) -20 percent
B) -10 percent
C) 10 percent
D) 20 percent

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if velocity is stable and the money supply does not change, a 20% increase in real GDP would lead to a 20% decrease in the price level to maintain the equation MV = PY.

Assuming That Velocity Is Stable,if Real GDP Grows by 20