Suppose output is growing at 3% and the nominal money stock is growing at 0%. Also assume that the economy has reached its medium- run equilibrium. Given this information, we know with certainty that:
A) inflation is greater than 3%.
B) inflation is equal to 3%.
C) deflation occurs.
D) inflation is positive.
E) the real interest rate is equal to the nominal interest rate.

Question

Quizplus · Accepted Answer

In medium-run equilibrium, the growth rate of nominal money supply equals the sum of the growth rate of real output and inflation. Since the nominal money stock is growing at 0% and output is growing at 3%, inflation must be negative (deflation) to balance the equation.

Suppose Output Is Growing at 3% and the Nominal Money