If the Fed makes the quantity of money grow at the same rate as the growth rate of real GDP and velocity does not change, in the long run what happens to the price level and the inflation rate?
What will be an ideal response?
If the quantity of money is growing at the same rate as real GDP and velocity does not change, then the price level does not change. In this case, the inflation rate equals 0 percent.
You might also like to view...
In general economic environments that correspond to lower levels of planned aggregate expenditure for a given level of Y have PAE curves that are:
A. higher on the expenditure diagram. B. lower on the expenditure diagram. C. at multiple points on the diagram. D. equivalent at point in the diagram.
Define the following terms:
a. Human capital b. Investment c. Capital formation d. Property rights
The supply of oil for users in the United States
a. was never an issue of serious public concern until the 1970s. b. has never been an issue of serious concern by political leaders. c. has often been a topic for dire warnings and forecasts of oil depletion. d. has been more and more in doubt since the early 1980s.
With sticky prices increasing, the supply of money results in:
a. an increase in the nominal rate of interest. b. an increase in the U.S. dollar exchange rate. c. a decrease in the nominal rate of interest. d. increased price and wage flexibility.