The table below shows data for Indonesia between 2005 and 2006.
$$\begin{array} { | l | l | l | }
\hline & 2005 & 2006 \
\hline \text { Money growth rate } & 21.4 & 12.0 \
\hline \text { Real GDP growth rate } & 5.7 & 5.5 \
\hline
\end{array}$$
Assume the rate of velocity change is constant. According to the quantity theory of money, Indonesia?s inflation rate

Question

The table below shows data for Indonesia between 2005 and 2006.
$$\begin{array} { | l | l | l | } 
\hline & 2005 & 2006 \
\hline \text { Money growth rate } & 21.4 & 12.0 \
\hline \text { Real GDP growth rate } & 5.7 & 5.5 \
\hline
\end{array}$$
Assume the rate of velocity change is constant. According to the quantity theory of money, Indonesia?s inflation rate

Quizplus · Accepted Answer

According to the quantity theory of money, inflation is approximately equal to the money growth rate minus the real GDP growth rate. In 2005, this is 21.4% - 5.7% = 15.7%, and in 2006, it is 12.0% - 5.5% = 6.5%. Therefore, the inflation rate is higher in 2005 than in 2006.

The Table Below Shows Data for Indonesia Between 2005 and 2006