Figure 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
-Refer to Figure 30-3. 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 30-3. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes. 
-Refer to Figure 30-3. 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 velocity and output are constant, would result in a 50% inflation rate according to the quantity theory of money.