If spending grows by 3% while real growth is 1% and velocity is stable,then prices will be _____ at a rate of _____ according to the aggregate demand curve.
A) falling;3%
B) falling;2%
C) rising;3%
D) rising;2%

Question

Quizplus · Accepted Answer

If spending (nominal GDP) grows by 3% and real growth (real GDP) is 1%, with velocity stable, the difference (3% - 1% = 2%) must be accounted for by an increase in the price level, indicating inflation. Thus, prices are rising at a rate of 2%.

If Spending Grows by 3% While Real Growth Is 1