If the money supply increases 12 percent, velocity decreases 4 percent, and the price level increases 5 percent, then the change in real gdp must be percent. a) 3 b) 4 c) 9 d) 11

Option (A) is correct.

Explanation:

Given that,

Money supply increases (M) = 12 percent

Velocity decreases (V) = 4 percent

Price level increases (P) = 5 percent

Real GDP (Y) = ?

According to the quantity theory of money,

Percent Change in M + Percent Change in V = Percent Change in P + Percent Change in Y

                                                         12% - 4% = 5% + Percent Change in Y

                                    Percent Change in Y = 8% - 5%

                                                                         = 3%

Therefore, change in real GDP must be 3%.

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