If the Fed adheres to a strict "money growth rule" of 3% (that is,they keep $\vec { M }$ at 3% no matter what),what happens if velocity growth ( $\vec { v }$ )drops?
A) Inflation,real growth,and nominal wage growth all decrease.
B) Inflation increases,but real growth and nominal wage growth decrease.
C) Inflation and nominal wage growth decrease,but real growth increases.
D) Inflation,real growth,and nominal wage growth all increase.

Question

Quizplus · Accepted Answer

If velocity growth drops while money supply growth is fixed at 3%, the overall nominal GDP growth will decrease, leading to lower inflation, real growth, and nominal wage growth.

If the Fed Adheres to a Strict "Money Growth Rule M⃗\vec { M }M

If the Fed Adheres to a Strict "Money Growth Rule $\vec { M }$