If the quantity of money grows at 3 percent per year, velocity does not grow, and real GDP grows at 2 percent per year, then the inflation rate equals
A)12 percent.
B)6 percent.
C)5 percent.
D)-1 percent.
E)1 percent.

Question

Quizplus · Accepted Answer

The inflation rate can be calculated using the equation: Inflation rate = Money supply growth rate + Velocity growth rate - Real GDP growth rate. Here, it is 3% + 0% - 2% = 1%.

If the Quantity of Money Grows at 3 Percent Per