Final answer:
The statement is false; while the rate of money growth can influence the inflation rate, the relationship is not defined as a simple subtraction from economic growth. Factors such as velocity of money, fiscal policy, and economic shocks also play a role in determining the overall impact of inflation.
Step-by-step explanation:
The statement that the inflation rate will be equal to the rate of money growth minus the rate of economic growth at a steady state is false. In economic theory, specifically the Quantity Theory of Money, the inflation rate is often related to the rate of money growth. However, the relationship is not defined as simple subtraction from economic growth. According to the Quantity Theory, the general price level of goods and services is directly proportional to the amount of money in circulation, or money supply.
The formula derived from the Quantity Theory of Money states that MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the output of the economy (quantity of goods and services produced). When considering growth rates, if the money supply (M) grows at a faster rate than the real output (Q), then there can be inflation assuming the velocity of money (V) is stable. Therefore, at a very simplified level, one might say that if the money supply grows and the economic growth remains constant, the excess of money could lead to inflation.
However, in practice, various factors affect these variables, and the actual impact of inflation on the economy can vary. Low and steady inflation is often a sign of a healthy economy. Conversely, high inflation, especially hyperinflation, can have destructive effects on an economy. It's essential to understand that inflation can be influenced by more than just the interplay of money supply growth and economic growth, including fiscal and monetary policy, supply shocks, and expectations.