If the growth rate of velocity is -2 percent, the growth rate of money supply is 7 percent, and the inflation rate is 3 percent, what is the growth rate of real output?
A)1 percent
B)2 percent
C)3 percent
D)4 percent

Question

If the growth rate of velocity is -2 percent, the growth rate of money supply is 7 percent, and the inflation rate is 3 percent, what is the growth rate of real output?
A)​1 percent
B)​2 percent
C)​3 percent
D)​4 percent

Quizplus · Accepted Answer

The growth rate of real output can be calculated using the Fisher equation of exchange (MV = PQ), where M is the money supply, V is the velocity of money, P is the price level (inflation), and Q is the real output. The growth rate of real output is the growth rate of money supply plus the growth rate of velocity minus the inflation rate. Therefore, it's 7% (money supply growth) - 2% (velocity growth) - 3% (inflation) = 2%.

If the Growth Rate of Velocity Is -2 Percent, the Growth