Is it a necessary condition that velocity is constant and that real output growth is assumed to be zero to have Milton Friedman's assertion that inflation is a monetary phenomenon be true?
What will be an ideal response?
Not really. Friedman's assertion would hold with the long-run trend rate of real growth and the assumption that over the long-run velocity is constant or even predictable. For example, if we assume that real output grows at a long-run rate of 3 percent and that velocity grows at 1 percent over the long run, then any growth rate of money that exceeds 2 percent will result in inflation in the long run. In this case, it is still an excessive growth rate of money that causes sustained inflation. So Friedman's assertion that inflation is a monetary phenomenon remains true.
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A. 0.33. B. 1.2. C. 3. D. 12.