If initially the money supply is $1 trillion, velocity is 5, the price level is 1, and real gdp is $5 trillion, an increase in the money supply to $2 trillion a. increases real gdp to $10 trillion. b. causes velocity to fall to 2.5. c. increases the price level to 2. d. increases the price level to 2 and velocity to 10.

Option (B) is correct.

Explanation:

Given that,

Initially:

Money supply = $1 trillion

Velocity = 5

Price level = 1

Real GDP = $5 trillion

If money supply increases to $2 trillion

Velocity of money =

Velocity of money =

                              = 2.5

Therefore, an increase in the money supply to $2 trillion causes velocity to fall to 2.5.

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answer; risk transference;