Suppose a constant-money-growth-rate rule of 3 percent is being considered.If it is estimated that average annual Real GDP growth is 3.5 percent and it turns out that velocity is rising by 2 percent a year on average,the rule would produce an average annual rate of inflation of __________ percent.
A) 1.5
B) 2.5
C) 3.0
D) 5.5
E) 2.0

Question

Quizplus · Accepted Answer

The formula for inflation is: Inflation = Money Growth Rate + Velocity Growth Rate - Real GDP Growth Rate. Substituting the given values: 3% + 2% - 3.5% = 1.5%.

Suppose a Constant-Money-Growth-Rate Rule of 3 Percent Is Being Considered