Question

Suppose the real gross domestic product (GDP) grows by 2% and inflation is equal to 3%, but there is no change in the velocity of money. based on the equation of exchange, by how much does the quantity of money change?

Answer 1

the quantity of money growed to be 5%

Step-by-step explanation:

The computation of the expected change in the quantity of money is shown below:

As we know that

Growth rate of money supply = Real GDP growth rate + inflation rate

= 2% + 3%

= 5%

Keeping the velocity be constant

Hence, the quantity of money growed to be 5%

We simply applied the above formula so that the correct value could come

And, the same is to be considered