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21 September, 14:27

Suppose that the velocity of money is stable, 4% real economic growth is occurring, the rate of inflation is 4%, unemployment is 5.3%, and the marginal propensity to save is 3%.

By how much is the money supply growing? Enter your answer as a percentage.

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  1. 21 September, 15:30
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    8%

    Explanation:

    Growth in money supply + Growth in velocity = Inflation + Real economic growth

    Given:

    Growth in velocity = 0 (stable at 4% hence 0 growth) Inflation = 4% Real economic growth = 4%

    Using formula

    Growth in money supply + Growth in velocity = Inflation + Real economic growth

    Growth in money supply + 0 = 4% + 4% Growth in money supply = 8%
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