I) The growth rate of Eduland's money supply in a particular year was 8.5%
What was the growth rate of real GDP if the inflation rate in the same year was 4%?
ii) What is likely to happen if the growth rate of money supply doubles in the following year, while the growth rate of real output remains unchanged?
i) According to the quantity theory of money, the ratio of money supply to nominal GDP is constant. Therefore, the rate of growth of money supply must equal the rate of growth of nominal GDP. However, growth rate of nominal GDP is the sum of growth rate of real GDP and the inflation rate. Thus,
Rate of Growth in Money Supply = Rate of Growth in Real GDP + Inflation Rate. Thus, the growth rate of real GDP in this case is 8.5% - 4% = 4.5%.
ii) If the growth rate of money supply doubles in the following year and the growth rate of real output remains unchanged, the inflation rate will also double.
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A) the demand falls. B) the quantity demanded falls. C) the quantity demanded increases. D) total dollar expenditure on the good decreases. E) total dollar expenditure on the good increases.
When steady state capital per worker is above the golden-rule level, we know with certainty that an increase in the saving rate will
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