Question

Assuming the Mexican economy is growing by 5% and the central bank aims to increase the money supply by 5%, what is the expected inflation rate in Mexico?

a) 0%

b) 2.5%

c) 5%

d) Not determinable with given information.

Answer 1

The expected inflation rate in Mexico would be 0%.

Step-by-step explanation:

To determine the expected inflation rate in Mexico, we need to consider the relationship between economic growth and money supply. If the Mexican economy is growing by 5% and the central bank aims to increase the money supply by 5%, it suggests that the increase in money supply matches the growth rate of the economy. This means there is no excess money chasing too few goods, resulting in stable prices and zero inflation. Therefore, the expected inflation rate in Mexico would be 0% (option a).