You are the head of the central bank and you want to maintain 2 percent long-run inflation. Using the quantity theory of money, if real GDP growth is 4 percent and velocity is constant, you suggest a:
A) 4 percent money supply growth.
B) 6 percent interest rate.
C) 2 percent money supply growth.
D) 0 percent money supply growth.
E) None of these answers is correct.

Question

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The Answer of You are the head of the central bank and you want to maintain 2 percent long-run inflation. Using the quantity theory of money, if real GDP growth is 4 percent and velocity is constant, you suggest a:
A) 4 percent money supply growth.
B) 6 percent interest rate.
C) 2 percent money supply growth.
D) 0 percent money supply growth.
E) None of these answers is correct.

You Are the Head of the Central Bank and You