Respuesta :
The largest money growth rate the fed could implement and still achieve its inflation target is 5.43
What is Inflation ?
A rise in prices that over time causes a loss in purchasing power is referred to as "inflation." The rate at which purchasing power is dwindling can be calculated using the average price growth of a selected basket of goods and services over time. Because of the increase in prices, which is typically expressed as a percentage, a unit of money now effectively has less purchasing power than it had earlier. Though it may manifest through other economic mechanisms, a rise in the money supply is the primary cause of inflation.
The monetary authorities have the following options for raising a nation's money supply:
- printing extra money to distribute to the public
- Devaluing (decreasing) the value of the lawful tender money
- generating reserve account credits for fresh loans through the banking system by acquiring government bonds from banks on the secondary market (the most common method)
All of these situations result in the money's buying power declining.
There are three different sorts of mechanisms that cause inflation as a result: built-in inflation, cost-push inflation, and demand-pull inflation.
To solve the question the following formula was used :
Money supply + velocity = real GDP + inflation target
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