Author Question: If the growth of the quantity of money is 5 percent per year, potential and real GDP grow at 3 ... (Read 67 times)

rachel9 · **on:** Jun 29, 2018

If the growth of the quantity of money is 5 percent per year, potential and real GDP grow at 3 percent per year, and velocity does not change, in the long run what is the inflation rate?

What will be an ideal response?

Question 2

Using the figure above, if Jack and Jill specialize and gain from trade, then

A) Jack specializes on the production of soda and water.
B) Jack specializes in the production of soda.
C) Jack produces equal amounts of gallons of water and bottled water.
D) Jack specializes in the production of bottled water.
E) Jack and Jill produce beyond their PPF.

234sdffa · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

With velocity constant, in the long run, the inflation rate equals the growth in the quantity of money minus the growth in potential GDP, or (5 percent) - (3 percent) = 2 percent.

Answer to Question 2

D