The inflation rate is 4 percent a year, the real GDP growth rate is 2 percent a year, and the rate of increase in velocity is 0 percent a year.
What is the money growth rate?
To calculate the money growth rate, we can use the Quantity Theory of Money equation, which states that the money growth rate equals the sum of the inflation rate and the velocity growth rate minus the real GDP growth rate.
Given:
- Inflation rate = 4% per year
- Real GDP growth rate = 2% per year
- Velocity growth rate = 0% per year
We can substitute these values into the equation:
Money growth rate = Inflation rate + Velocity growth rate - Real GDP growth rate
= 4% + 0% - 2%
= 2% per year.
Therefore, the money growth rate is 2% per year.