Final answer:
Assuming a stable velocity of money, if real GDP increases without an increase in the money supply, the price level would either remain unchanged or potentially decrease. However, if the money supply increases proportionally with real GDP, prices would likely stay the same, adhering to the Quantity Theory of Money.
Step-by-step explanation:
If we assume a stable velocity of money and real GDP increases, we need to refer to the Quantity Theory of Money, which is typically stated as MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of goods and services produced (real GDP). When V (velocity of money) is constant and Q (real GDP) increases without a change in M (money supply), then P (price level) would either stay the same or decrease if Q increases by a higher percentage than M. This situation would occur because more goods and services are available for the same amount of money. However, if real GDP increases due to an increase in M, then P would rise reflecting inflation. The key here is the relationship between the changes in money supply and real GDP and how they affect the price level.
Considering an increase in real GDP without an increase in the money supply under the stable velocity of money: there would be more goods and services in the economy, but the same amount of money circulating. This could potentially lower the price level if the supply of goods and services increases faster than the money supply, leading to deflationary pressures. If the increase in real GDP is matched by a proportional increase in the money supply, the price level should, in theory, remain unchanged.