Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.
-Refer to Figure 30-3.At the end of 2007 the relevant money-supply curve was the one labeled MS₁.At the end of 2008 the relevant money-supply curve was the one labeled MS₂.Assuming the economy is always in equilibrium,what was the economy's approximate inflation rate for 2008?

Question

Figure 30-3.On the graph,MS represents the money supply and MD represents money demand.The usual quantities are measured along the axes.

-Refer to Figure 30-3.At the end of 2007 the relevant money-supply curve was the one labeled MS₁.At the end of 2008 the relevant money-supply curve was the one labeled MS₂.Assuming the economy is always in equilibrium,what was the economy's approximate inflation rate for 2008?

Quizplus · Accepted Answer

When the money supply curve shifts to the right, it causes inflation. In this case, the money supply curve shifted from MS₁ to MS₂ from 2007 to 2008. The intersection of the money supply and money demand curves also shifted to the right, indicating that the quantity of money demanded increased. This increase in money supply and demand could result in an inflation rate of approximately 50% for 2008.