Calculate the real money supply growth rate when the nominal money supply increases by 10% and the price level increases by each of the following percentages: a) 2%; b) 8%; c) 10%; d) 15%
What will be an ideal response?
Real money supply growth rate = nominal money supply growth rate minus the price level growth rate. (The price level growth rate is the inflation rate.)
(a) Real money supply growth rate = 10% - 2% = 8%.
(b) Real money supply growth rate = 10% - 8% = 2%.
(c) Real money supply growth rate = 10% - 10% = 0%.
(d) Real money supply growth rate = 10% - 15% = -5%.
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