Question

If the money supply is growing at a rate of 3 percent per​ year, real GDP​ (real output) is growing at a rate of 3 percent per​ year, and velocityLOADING... is​ constant, what will the inflation rate​ be?

Answer 1

Answer:

0%

Explanation:

Given that,

Growth rate of money supply = 3% per year

Real GDP growth rate = 3% per year

Velocity = Constant

According to the quantity growth theory of money,

M + V = P + Y

where,

M = Growth rate of money supply

V = Velocity

P = Inflation rate

Y = Real GDP growth rate

M + V = P + Y

3% + 0 = P + 3%

3% - 3% = P

0% = P

Therefore, the inflation rate is 0%.