The money supply grew at a rate of 5% from 2015 to 2016. Since pen output did not change from 2015 to 2016 and the velocity of moneydecreased, the change in the money supply was reflected in changes in the price level. The inflation rate from 2015 to 2016 was 5%.

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Business

Alex

7 April, 01:11

The money supply grew at a rate of 5% from 2015 to 2016. Since pen output did not change from 2015 to 2016 and the velocity of moneydecreased, the change in the money supply was reflected in changes in the price level. The inflation rate from 2015 to 2016 was 5%.

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Mathew Blackwell · Answer 1

True

Explanation:

If the total output of the economy does not change and the change in the money supply directly affected the changes in the price level, then the increase in the money supply will simply increase the inflation rate. For example, if the economy produced 100 units at $1 per unit, and the total money supply increases by 5%, the price of the units will increase to $1.05, but the total output will still be 100 units. The only thing that changed was a decrease in the relative value of the currency due to an increase in the inflation rate.