Final answer:
The Quantity Theory of Money suggests that the percentage change in Price Level is nearly equal to the percentage change in Money Supply minus the percentage change in Real GDP plus the change in velocity, assuming velocity is constant. Variations in velocity may affect predictability.
Step-by-step explanation:
According to the Quantity Theory of Money, the percentage change in the Price Level (P) is approximately equal to the percentage change in the Money Supply (M) minus the percentage change in Real GDP (Y) plus the percentage change in velocity. If the velocity of money is considered constant, then the percentage change in P directly correlates with the changes in M and Y.
However, if the velocity is changing, the predictability of the changes in P in response to changes in M may become uncertain.According to the Quantity Theory of Money, the percentage change in P (the price level) is approximately equal to the percentage change in M (the money supply) minus the percentage change in Y (real GDP).This can be represented as: ΔP ≈ ΔM - ΔY.The Quantity Theory of Money suggests that an increase in the money supply will lead to an increase in prices, assuming real GDP remains constant.