Assuming a long-run relationship, if real output growth is 2.8% and velocity stays constant, by how much would the money supply have to grow to achieve an inflation rate of 2%?
A)4)8%
B)2)8%
C)2)0%
D)0)8%
E)the answer can't be determined from this information

Question

Quizplus · Accepted Answer

The quantity theory of money equation is MV = PQ, where M is the money supply, V is velocity, P is the price level, and Q is real output. If real output growth is 2.8% and velocity stays constant, then the money supply must grow by 2.8% to achieve an inflation rate of 2%.

Assuming a Long-Run Relationship, If Real Output Growth Is 2