Assuming a long-run relationship, if the nominal money supply grows at a rate of 12%, the inflation rate is 8%, and real output growth is 4%, what is the percentage change in velocity?
A)0%
B)4%
C)8%
D)12%
E)16%

Question

Quizplus · Accepted Answer

The percentage change in velocity is 0% because the growth rate of the nominal money supply (12%) is equal to the sum of the inflation rate (8%) and the real output growth (4%), indicating that the velocity of money is constant.

Assuming a Long-Run Relationship, If the Nominal Money Supply Grows