Question

If the money supply is growing at a rate of 1010 percent per​ year, real GDP​ (real output) is growing at a rate of 11 percent per​ year, and velocityLOADING... is​ constant, what will the inflation rate​ be? nothing​%. ​(Enter your response as an integer value.​)

Answer 1

Answer:

The correct answer is 999%

Explanation:

We will use the Quantity Theory of Money to solve this simple question.

The Quantity Theory of Money equation is equal to:

ΔM X V = ΔP X ΔY

Where:

• ΔM = Change in Money supply
• V = Velocity, which does not change, because it is assumed to be constant
• ΔP = Change in prices, or inflation
• ΔY = Change in output or GDP

According to this theory, inflation is equal to:

ΔP = ΔM + V - ΔY

Replacing...

ΔP = 1010% + 0 - 11%

ΔP = 999%

So the price change, or inflation rate is 999%.