Final answer:
To forecast the inflation rate, we can use the quantity theory of money. The increase in the money supply will lead to an increase in the price level, resulting in inflation. The inflation rate can be calculated based on the change in the price level divided by the initial price level.
Step-by-step explanation:
To make a forecast of the inflation rate between this year and the next, we can use the quantity theory of money. According to the quantity theory of money, inflation is directly related to the increase in the money supply. In this case, the central bank has been ordered to print an extra 10 billion pesos, which will increase the money supply. Assuming that the quantity of goods and services remains constant, the increase in the money supply will lead to an increase in the price level, resulting in inflation.
For example, if the money supply this year is M and the price level is P, and next year the money supply increases to M+10 billion pesos, the new price level will be P+X, where X represents the increase in the price level. The inflation rate can be calculated as (X/P) * 100%.
However, it is important to note that the quantity theory of money assumes that the velocity of money (the number of times a unit of currency is used in transactions) and real output (the quantity of goods and services produced) remain constant. In reality, these factors can vary and impact the relationship between the money supply and inflation.