Question

You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest

Answer 1

growth rate of money be to the inflation target = 6.1%

Step-by-step explanation:

given data

long-run inflation = 2%

real GDP growth = 4 percent

to find out

growth rate of money

solution

we get here growth rate g that is get by given formula that is

`\tex{1.02* P = [(1 + g)* M* V]}{(1.04* Y)}}` .........................1

here we get growth rate g

1.02 =
`((1 + g))/(1.04)`

solve it we get

growth rate = 6.1%

so that growth rate of money be to the inflation target = 6.1