If the nominal money supply grows 5%,real income falls 2%,and the income elasticity of money demand is 0.8,then the inflation rate is

Question

Quizplus · Accepted Answer

The inflation rate can be calculated using the formula for the Fisher equation, which relates nominal money supply growth (M), real income growth (Y), and the income elasticity of money demand (e) to the inflation rate (π): M - π = eY. Given M = 5%, Y = -2%, and e = 0.8, solving for π gives an inflation rate of 6%.

If the Nominal Money Supply Grows 5%,real Income Falls 2%,and