Question

Suppose the growth rate of the money supply is 3 percent, the growth rate of velocity is 4 percent, and the growth rate of real aggregate output is 2 percent. According to the equation of exchange, the inflation rate would be _____ percent

Select one:

a. 7

b. 6

c. 5

d. 4

e. 3

Answer #1

Ans.**Correct Option is c. 5%**

M (growth in money supply ) = 3%

V (growth rate of velocity ) = 4%

Y ( growth rate of real aggregate output ) = 2%

Expected Inflation Rate = M + V - Y

= 3% + 4% - 2% = **5%**

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