1.4 Why is the real-world deposit multiplier smaller than 1/RR, where RR is the requiredreserve ratio?1.5 According to the quantity theory of money, if the money supply is growing at a rate of 5percent, real GDP is growing at a rate of 2 percent, and velocity is constant, what will theinflation rate be?

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Asked Dec 4, 2019
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how do i answer 1.5 . it seems like something is missing for me to do the equation

1.4 Why is the real-world deposit multiplier smaller than 1/RR, where RR is the required
reserve ratio?
1.5 According to the quantity theory of money, if the money supply is growing at a rate of 5
percent, real GDP is growing at a rate of 2 percent, and velocity is constant, what will the
inflation rate be?
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1.4 Why is the real-world deposit multiplier smaller than 1/RR, where RR is the required reserve ratio? 1.5 According to the quantity theory of money, if the money supply is growing at a rate of 5 percent, real GDP is growing at a rate of 2 percent, and velocity is constant, what will the inflation rate be?

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Expert Answer

Step 1

Quantity theory of money refers to the relationship between price level and money supply. This relation can be numerically expressed as MV = PT.

Step 2

According to quantity theory of money, MV = PT (Money growth + velocity = inflation rate + ...

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Money growth rate+ Rate of velocity = Inflation rate + Real GDPgrowth 5+0 Inflation rate +2% Inflation rate =5-2 -3%

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