Suppose the growth rate of the money supply is 5% per year and the velocity of money is constant. In this case:

A. the difference between inflation and the real growth rate must be 5%.
B. inflation and the real growth rate must both be 5%.
C. the sum of inflation and the real growth rate must be 5%.
D. neither the inflation rate nor the real growth rate can exceed 5%.


Ans: C. the sum of inflation and the real growth rate must be 5%.

Economics

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