Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

Question

Quizplus · Accepted Answer

The quantity equation is MV = PY, where M is the money supply, V is the velocity of money, P is the price level (inflation rate), and Y is real GDP. The growth rate form is: growth rate of M + growth rate of V = inflation rate + growth rate of Y. Plugging in the given values: 10% + 5% = inflation rate + 4%, solving gives an inflation rate of 11%.

Using the Quantity Equation, If the Velocity of Money Grows