Answer to Question #14165 in Economics of Enterprise for Lahja Sheehamandje
suppose real GDP is growing at 4 percent, the money supply is growing at 11 percent, the velocity of money is constant and the real interest rate is 6 percent.
a. what is the current inflation rate and nominal interest rate?
b.if the money supply growth rate increases to 15 percent, how will your answers in part (a) change?
(i) M/P=Y/V Y - growing by 3% so coeficient = 1.03 M - growing by 10% so coeficient = 1.10 V - constant =1 1.1/P=1.03/1 P=1.1/1.03≈1.068≈+6.8%