Answer:
Explanation:
income elasticity of money demand = 1
interest elasticity of money demand = - 0.10
Real income growth rate = 3.3 %
A) to achieve zero inflation rate next year
applying the quantity theory of exchange
% change in M + % change in V = %change in price + %change in real income
= 3.3 + 0 = 0 + 3.3%
hence the growth rate nominal money supply the central bank should choose is 3.3%
B) %change in V can be calculated
applying this formula
% change of V = %change in price + %change in real income - %changeinM
= % change of V = 0 + 3.3 - 3.3
therefore %change of V if the central bank follows the zero inflation policy = 0%