If the price level falls by 10 percent and real GDP increases by 10 percent, then the demand for money will likely be unchanged.

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if the price level falls by 10 percent and real GDP increases by 10 percent, then the overall demand for money will remain the same. This is because the increase in real GDP will lead to an increase in transactions which would require more money to be in circulation, but the decrease in the price level would reduce the amount of money necessary for each transaction, leading to an overall balance in the demand for money.

If the Price Level Falls by 10 Percent and Real