Question

If real GDP grows by 3 percent, the velocity of circulation does not change, and the quantity of money grows by 3 percent, then in the long run the inflation rate is

Answer 1

Based on the real GDP growth rate, the velocity of circulation, and the quantity of money, the long run inflation rate will be 0%.

What is the long-run inflation rate?

This can be found using the Quantity theory of money:
Money supply x Velocity of circulation = Price level x Real GDP

Can also be written as:

% change in M + % change in V = % change in P + % change in Y

Solving gives:

3% + 0 = P + 3%

P = 3% - 3%

= 0%

The price level is to increase by 0% which means that inflation is 0%.

Find out more on the Quantity theory of money at brainly.com/question/26370040.