In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in

Question

Quizplus · Accepted Answer

According to the quantity theory of money, if the velocity of money is constant, the inflation rate is the difference between the growth rate of the money supply and the growth rate of real output. Here, 7% (money supply growth) - 3% (real output growth) = 4% inflation rate.

In an Economy in Which Real Output Grows at an Average