) Suppose the money supply grew at an average annual rate of 20%, velocity was constant, the nominal interest rate averaged 16%, and output grew at an average annual rate of 8%. According to the Quantity Theory, a. inflation averaged 6% per year and the real rate of return was 2%. b. inflation averaged 12% per year and the real rate of return was 4%. c. inflation averaged 10% per year and the real rate of return was 8%. d. inflation averaged 20% per year and the real rate of return was 6%

) Suppose the money supply grew at an average annual rate of 20%, velocity was constant, the nominal interest rate averaged 16%, and output grew at an average annual rate of 8%. According to the Quantity Theory, a. inflation averaged 6% per year and the real rate of return was 2%. b. inflation averaged 12% per year and the real rate of return was 4%. c. inflation averaged 10% per year and the real rate of return was 8%. d. inflation averaged 20% per year and the real rate of return was 6%

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Money Growth And Inflation

Section: Chapter Questions

Problem 5CQQ

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QUESTION THREE Assuming a constant velocity of money while the money supply is growing 10% per year, real GDP is growing at 4% per year, and the real interest rate is r = 8%. Assume that actual Inflation is equal to expected inflation. a) Find the value of the nominal interest rate in this economy b) If the central bank increases the money growth rate by 4% per year, find the change in the nominal interest rate Ai C) Suppose the growth rate of Y falls to 2% per year. What will happen to inflation? What must the central bank do if it wishes to keep inflation constant?
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