Suppose that for a given year money growth is 12 percent, real GDP growth is 4 percent, and velocity is constant. According to the growth version of the quantity equation, the inflation rate would be
A) 0.67 percent.
B) 3 percent.
C) 8 percent.
D) 16 percent.

Question

Quizplus · Accepted Answer

The growth version of the quantity equation is given by the formula: Inflation Rate = Money Growth Rate - Real GDP Growth Rate, assuming velocity is constant. Therefore, the inflation rate = 12% - 4% = 8%.

Suppose That for a Given Year Money Growth Is 12