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Economics
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23 Nov 2019

6. True/False. In the country of Wiknam, the velocity of money is constant; real gross domestic product (GDP) grows by 3 percent; the money stock grows by 4 percent; and the nominal interest rate is 3 percent. The real interest rate is 1 percent.

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Trinidad Tremblay
Trinidad TremblayLv2
23 Aug 2019
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Related questions

Suppose a country has a money demand function Md = kY, where k is a constant parameter. The money supply grows by 12 percent per year, and real income grows by 4 percent per year.

a. What is the average inflation rate?

b. How would inflation be different if real income growth were higher? Explain.

c. How do you interpret the parameter k? What is its relationship to the velocity of money?

d. Suppose, instead of a constant money demand function, the velocity of money in this economy was growing steadily because of financial innovation. How would that affect the inflation rate? Explain.

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c) If the growth rate of the money supply increases to 15%, velocity grows at 1%, and real GDP grows at 5% per year on average, then the inflation rate will be what %?

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c. Suppose, instead of a constant money demand function, the velocity of money in this economy was growing steadily because of financial innovation. How would that affect the inflation rate? Explain.

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