Using the equation of exchange, if inflation is 1%, the velocity of money grows by 1.0% and the growth rate of money is 3.0%; what is real growth?

Question

Quizplus · Accepted Answer

The equation of exchange is MV = PY, where M is the money supply, V is the velocity of money, P is the price level (inflation), and Y is real output (real growth). Given that the growth rate of money (M) is 3%, the velocity of money (V) grows by 1%, and inflation (P) is 1%, the real growth (Y) can be calculated as: 3% (M) + 1% (V) - 1% (P) = 3%.

Using the Equation of Exchange, If Inflation Is 1%, the Velocity