Suppose that for a given year money growth is 12 percent, real GDP growth is 3 percent, and velocity growth is 2 percent. According to the growth version of the quantity equation, the inflation rate would be
A) -3 percent.
B) 9 percent.
C) 11 percent.
D) 12 percent.

Question

Quizplus · Accepted Answer

According to the growth version of the quantity equation: 
%ΔM + %ΔV = %ΔP + %ΔY
Plugging in the given values: 
12% + 2% = %ΔP + 3%
%ΔP = 14% - 3% = 11%
Therefore, the inflation rate would be 11 percent. The correct answer is (C).

Suppose That for a Given Year Money Growth Is 12