Figure 30-3
On the following graph, MS represents the money supply and MD represents money demand.
-Refer to Figure 30-3. At the end of the first year, the relevant money-supply curve was the one labeled MS₂. At the end of the second year, the relevant money-supply curve was the one labeled MS₁. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for the second year?

Question

Figure 30-3
On the following graph, MS represents the money supply and MD represents money demand.

-Refer to Figure 30-3. At the end of the first year, the relevant money-supply curve was the one labeled MS₂. At the end of the second year, the relevant money-supply curve was the one labeled MS₁. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for the second year?

Quizplus · Accepted Answer

If the money supply decreases from MS2 to MS1, it indicates a contractionary monetary policy, which would likely lead to deflation or a negative inflation rate, hence -30 percent.

Figure 30-3 on the Following Graph, MS Represents the Money Supply and Supply