Suppose the annual growth rate of real GDP for the nation of Vicuna is 8%, the growth rate of velocity is 0%, and the growth rate of the money supply is 12%
a. What is the current rate of inflation?
b. What will happen to the inflation rate if the growth of the money supply increases to 16%?
c. What will happen to the inflation rate if the growth of the money supply increases to 16%, and at the same time, the growth rate of velocity increases to 4%?
a. The current rate of inflation is 12% - 8% = 4%.
b. The new rate of inflation is 16% - 8% = 8%.
c. The new rate of inflation is 16% + 4% - 8% = 12%.
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