If the growth rate of the quantity of money is 4 percent per ...

[littleanan]

If the growth rate of the quantity of money is 4 percent per year, potential GDP 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

Under a flexible exchange rate system, exchange rates are determined by free markets.
 
  Indicate whether the statement is true or false

[honnalora]

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 (4 percent) - (3 percent) = 1 percent.

Answer to Question 2

TRUE

[littleanan]

Correct answers!

[honnalora]

Great! Please up vote