Question

Suppose the growth in the quantity of money is 3.3 percent and growth in output (GDP) is 1.7 percent. What is the rate of price inflation, if any. Provide a negative sign "-" for negative changes. Do not include any symbols, such as "s,"-" "%," or "," in your your answer as a percentage rounded to two decimal places

Answer 1

The rate of price inflation can be calculated by subtracting the growth rate in real GDP from the growth rate in money supply. In this case, with a 3.3 percent growth in money supply and a 1.7 percent growth in real GDP, the rate of price inflation is 1.60 percent.

Step-by-step explanation:

To calculate the rate of price inflation given the growth in the quantity of money and the growth in output (GDP), we can use a rearranged version of the quantity theory of money. The equation is simplified as:

Rate of Inflation = Growth rate in money supply - Growth rate in real GDP

In this case, the growth in the quantity of money is given as 3.3 percent, and the growth in output (GDP) is 1.7 percent. Thus, the rate of price inflation can be calculated as follows:

Rate of Inflation = 3.3 - 1.7

By doing this calculation, we get a rate of inflation of:

Rate of Inflation = 1.6 percent

Therefore, the rate of price inflation is 1.60 (rounded to two decimal places).