In a small economy, the rate of money growth for the current year is 2 percent. Velocity of money circulation is stable. Inflation is expected to be about 1.5 percent over the current year. What is the short run economic growth rate?

Question

Quizplus · Accepted Answer

The formula for calculating the short-run economic growth rate is:

short-run economic growth rate = growth rate of the money supply - inflation rate

Since the rate of money growth is 2 percent and inflation is expected to be 1.5 percent, the short-run economic growth rate would be 0.5 percent. Therefore, the answer is choice C, 0.5 percent.

In a Small Economy, the Rate of Money Growth for the Current