suppose that in the united states the growth rate of money supply is 6 velocity is constant and

(a) The quantity theory of money states that the inflation rate is equal to the growth rate of t

Question

Suppose that in the United States, the growth rate of the money supply is 6%, velocity is constant, and real GDP grows at an average rate of 4% per year. (a) What does the quantity theory of money predict will be the inflation rate? [3 Points] (b) Suppose the growth rate of money increases to 15%. What does the quantity theory of money predict will happen to the inflation rate? Assume that all other variables are constant. [4 Points] (c) What do your answers to Parts (a) and (b) say about the relationship between high rates of money growth and inflation? [3 Points]

          Suppose that in the United States, the growth rate of the money supply is 6%, velocity is constant, and real GDP grows at an average rate of 4% per year.

(a) What does the quantity theory of money predict will be the inflation rate? [3 Points]

(b) Suppose the growth rate of money increases to 15%. What does the quantity theory of money predict will happen to the inflation rate? Assume that all other variables are constant. [4 Points]

(c) What do your answers to Parts (a) and (b) say about the relationship between high rates of money growth and inflation? [3 Points]

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