If a fixed money growth rate is followed and the growth rate of the natural level of real GDP is 4 percent per year,the average rate of inflation is:
A) 8 percent.
B) 4 percent.
C) zero.
D) 1-2 percent.

Question

Quizplus · Accepted Answer

If the money growth rate is fixed and the growth rate of the natural level of real GDP is 4 percent per year, then the average rate of inflation will be zero. This is because the money growth rate will only accommodate the growth in real GDP, and there will be no excess money growth to cause inflation.

If a Fixed Money Growth Rate Is Followed and the Growth