Homework SourseIn an economy the nominal GDP growth rate is 35 percent and
In an economy, the nominal GDP growth rate is 3.5 percent and inflation is 3.8 percent. If the velocity of money remains constant, what is the percent change in real money balances?
In an economy, the nominal GDP growth rate is 3.5 percent and inflation is 3.8 percent. If the velocity of money remains constant, what is the percent change in real money balances?
Solution
Since the velocity of money is constant, thus its growth rate =0
Money growth + velocity = Inflation + Real GDP growth
Money Growth = Inflation + Real GDP growth - Velocity
= 3.8% + 3.5% - 0%
= 7.3%
