If the fixed rule is followed and the growth rate is 4 percent per year and the monetary growth rate is 4 percent per year, the average rate of inflation is:
A)8 percent.
B)4 percent.
C)zero.
D)1-2 percent.

Question

Quizplus · Accepted Answer

If the fixed rule is followed and the growth rate is equal to the monetary growth rate, then there will be no inflation. In this scenario, the economy is growing at the same rate as the money supply, so there is no excess demand or supply of money that would lead to inflation. Therefore, the average rate of inflation would be zero.

If the Fixed Rule Is Followed and the Growth Rate