Question

Consider the following hypothetical data for 2012 and 2013:______. 2012 2013Money supply 2,000 2,100Velocity 5 5Real GDP 15,000 15,000The price levels for 2012 and 2013 are:Instructions: Enter your responses rounded to two decimal places.2012: ____2013: _____Instruction: Enter your response as a whole number.Rate of inflation between 2012 and 2013: _____%.

Answer 1

Answer:

Rate of inflation between 2012 and 2013 = 4.48%

Explanation:

Real GDP is the quantity of commodities produced in a specified year. Here real GDP is 15,000 in both 2012 and year 2013. Total money supply is the actual money supply multiplied by the velocity of money. So effective money supply is:

Money supply of the year 2012 = 2000 * 5 = 10,000

Money supply of the year 2013 = 2100 * 5 = 10,500

Price level is calculated by dividing money supply by real GDP.

Price level of the year 2012 = 10,000/15,000 = $0.67

Price level of the year 2013 = 10,500/15,000 = $0.7

Rate of inflation is the price rise in 2013. It is:

Rate of inflation between 2012 and 2013 = 0.7 - 0.67 / 0.67 = 0.0447761 = 4.48%