Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 12-3. At the end of 2009 the relevant money-supply curve was the one labeled MS₁. At the end of 2010 the relevant money-supply curve was the one labeled MS₂. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Question

Figure 12-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.

-Refer to Figure 12-3. At the end of 2009 the relevant money-supply curve was the one labeled MS₁. At the end of 2010 the relevant money-supply curve was the one labeled MS₂. Assuming the economy is always in equilibrium, what was the economy's approximate inflation rate for 2010?

Quizplus · Accepted Answer

The shift from MS1 to MS2 indicates a 50% increase in the money supply, which, assuming equilibrium, corresponds to an approximate 50% inflation rate.