In the quantity theory equation (in terms of growth rates), we have , where is the inflation rate, is the growth rate of money supply, is the growth rate of money velocity, and is the growth rate of GDP. What is one implication of increasing money supply growth from 3% to 5% if economic growth is generally constant at 3%, and velocity is constant at 5%? A) Inflation will decrease from 7% to 5% B) Inflation will decrease from 6% to 1% C) Inflation will rise from 3% to 5% D) Inflation will rise from 5% to 7%
In the quantity theory equation (in terms of growth rates), we have , where is the inflation rate, is the growth rate of money supply, is the growth rate of money velocity, and is the growth rate of GDP. What is one implication of increasing money supply growth from 3% to 5% if economic growth is generally constant at 3%, and velocity is constant at 5%? A) Inflation will decrease from 7% to 5% B) Inflation will decrease from 6% to 1% C) Inflation will rise from 3% to 5% D) Inflation will rise from 5% to 7%
Chapter16: Monetary Policy
Section: Chapter Questions
Problem 15SQ
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In the quantity theory equation (in terms of growth rates), we have , where is the inflation rate, is the growth rate of money supply, is the growth rate of money velocity, and is the growth rate of
A) Inflation will decrease from 7% to 5%
B) Inflation will decrease from 6% to 1%
C) Inflation will rise from 3% to 5%
D) Inflation will rise from 5% to 7%
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