Question

According to_____if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be approximately_____.

Answer 1

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be approximately 4%.

In monetary economics, the quantity theory of money is one of the directions of the Western financial notion that emerged in the sixteenth-seventeenth centuries. The Quantity Theory of Money states that the overall fee level of goods and services is without delay proportional to the amount of money in circulation, or money deliver.

The quantity theory of money states that money delivery and charge degree in an economic system is in direct proportion to one another. While there's a trade inside the supply of cash, there's a proportional exchange within the fee level and vice-versa.

Inflation is the rate of the boom in fees over a given time frame. Inflation is generally a wide degree, such as the general increase in charges or the boom in the cost of living in a country.

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