When real GDP is below potential GDP, a 10 percent increase in the money supply always results in a 10 percent increase in the price level.

Question

Quizplus · Accepted Answer

The relationship between the money supply and price level is not always straightforward and can be influenced by a variety of factors, such as changes in aggregate demand and aggregate supply. In some cases, a 10 percent increase in the money supply may result in less than a 10 percent increase in the price level, while in other cases it may result in more than a 10 percent increase. The actual outcome would depend on the specific characteristics and dynamics of the economy.

When Real GDP Is Below Potential GDP, a 10 Percent