Question

Suppose that the velocity of money is stable, 4% real economic growth is occurring, the rate of inflation is 4%, unemployment is 5.3%, and the marginal propensity to save is 3%.

By how much is the money supply growing? Enter your answer as a percentage.

Answer 1

8%

Step-by-step explanation:

• Growth in money supply + Growth in velocity = Inflation + Real economic growth

Given:

• Growth in velocity = 0 (stable at 4% hence 0 growth)
• Inflation = 4%
• Real economic growth = 4%

Using formula

• Growth in money supply + Growth in velocity = Inflation + Real economic growth

• Growth in money supply + 0 = 4% + 4%

• Growth in money supply = 8%