The table below shows data for Indonesia between 2005 and 2006. $$\begin{array} { | l | c | c | }
\hline & \mathbf { 2 0 0 5 } & \mathbf { 2 0 0 6 } \
\hline \text { Money growth rate } & 21.4 & 12.0 \
\hline \text { Real GDP growth rate } & 5.7 & 5.5 \
\hline
\end{array}$$
Assume the rate of velocity change is constant. According to the quantity theory of money,Indonesia's inflation rate

Question

The table below shows data for Indonesia between 2005 and 2006. $$\begin{array} { | l | c | c | } 
\hline & \mathbf { 2 0 0 5 } & \mathbf { 2 0 0 6 } \
\hline \text { Money growth rate } & 21.4 & 12.0 \
\hline \text { Real GDP growth rate } & 5.7 & 5.5 \
\hline
\end{array}$$
Assume the rate of velocity change is constant. According to the quantity theory of money,Indonesia's inflation rate

Quizplus · Accepted Answer

According to the quantity theory of money, inflation is determined by the equation MV=PY, where M is the money supply, V is the velocity of money, P is the price level, and Y is real GDP. Assuming V is constant, an increase in M leads to an increase in P. The rate of inflation can be calculated as (M2-M1)/M1 x 100%, where M1 is the money supply in the base year and M2 is the money supply in the current year. Using this formula, we can calculate that the inflation rate in 2005 is (21.4-5.7)/5.7 x 100% = 276.9%, and the inflation rate in 2006 is (12.0-5.5)/5.5 x 100% = 109.1%. Therefore, the best choice is A, as inflation was higher in 2005 than in 2006.

The Table Below Shows Data for Indonesia Between 2005 and 2006