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

Question

Quizplus · Accepted Answer

If velocity is constant and real output grows at an average rate of 4 percent per year, a 4 percent average rate of growth in the money supply would result in a constant price level. This is because the increase in money supply is matched by the increase in real output, leading to no significant changes in the overall price level.

In an Economy in Which Velocity Is Constant and Real