Suppose the full-employment level of real GDP is increasing at a rate of 4% per period. If policymakers are committed to keeping the long-run inflation rate at 3% per period, then what is the targeted money growth rate, assuming constant velocity?
A) 7%
B) 4%
C) 1%
D) -1%

Question

Quizplus · Accepted Answer

The targeted money growth rate should equal the sum of the real GDP growth rate (4%) and the inflation rate (3%), which is 7%, assuming constant velocity.

Suppose the Full-Employment Level of Real GDP Is Increasing at a Rate