If the money supply is increasing at a constant 8 percent,velocity is constant,real GDP is increasing at 5 percent,and the inflation rate is 3 percent,which of the following is true?
A)The growth rate of GDP is too low to be maintained.
B)The inflation rate is too low to be maintained.
C)Velocity is too low to be maintained.
D)The money supply growth rate is too low to be maintained.
E)This situation can continue indefinitely.

Question

Quizplus · Accepted Answer

The situation can continue indefinitely because the growth rate of the money supply (8%) equals the sum of the real GDP growth rate (5%) and the inflation rate (3%), which is consistent with the equation of exchange (MV = PY) assuming constant velocity.

If the Money Supply Is Increasing at a Constant 8