If real GDP grows by 3 percent, the velocity of circulation does not change, and the quantity of
Money grows by 3 percent, then in the long run the inflation rate is
A)3 percent.
B)6 percent.
C)-3 percent.
D)-6 percent.
E)0 percent.

Question

Quizplus · Accepted Answer

In the long run, if the quantity of money grows at the same rate as real GDP and the velocity of circulation remains constant, the inflation rate will be 0 percent according to the quantity theory of money.

If Real GDP Grows by 3 Percent, the Velocity of Circulation