Question

In: Economics

According to the quantity theory of​ money, what must the growth rate of the money supply...

According to the quantity theory of​ money, what must the growth rate of the money supply be given the following​ information?

The growth rate of real GDP is

2.3​%.

The growth rate of nominal GDP is

6.5​%.

The nominal interest rate is

7.0​%.

The real interest rate is

2.8​%.

The money supply​ (M2) is

​$11438​(in billions)

According to the quantity theory of​ money, the growth rate of the money supply must be

nothing​%.

​ (Round

your answer to the nearest

tenth.​)

According to the quantity theory of​ money, what is the inflation​ rate?

Use the information given above and calculate the inflation rate.

According to the quantity theory of​ money, the inflation rate is

nothing​%.

​ (Round

your answer to the nearest

tenth.​)

Solutions

Expert Solution

Solution:-

(a) Calculate the growth rate of the money supply:-

Growth rate of the money supply = Inflation + Growth rate of real GDP

                                                     = (7 - 2.8) + 2.3

                                                     = 4.2 + 2.3

                                                     = 6.5%

(b) Calculate the inflation rate:-

Inflation rate = Nominal Interest Rate – Real Interest Rate

                     = 7 – 2.8

                     = 4.2%

Rahul Sunny answered 2 years ago
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