Economists observed the following growth rates in the fourth quarter of 1995: real GDP = 2.8 percent; M₁ = 7.8 percent; GDP deflator = 2.2 percent.Given this data, the growth of velocity was approximately

Question

Quizplus · Accepted Answer

The growth rate of velocity is calculated as the difference between the growth rate of M1 and the growth rate of nominal GDP. In this case, the growth rate of M1 is 7.8 percent and the growth rate of nominal GDP is 2.8 percent + 2.2 percent = 5.0 percent. Therefore, the growth rate of velocity is 7.8 percent - 5.0 percent = -2.8 percent.

Economists Observed the Following Growth Rates in the Fourth Quarter