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Question 28 (5 points) Saved Suppose full employment real GDP is $2,000 billion and the money supply is $1,000 billion. Suppo
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Answer #1

According to quantity theory of money

MV = PY

1000(4) = P(2000)

P= 2

Price level is 2

Quantity theory in percentage terms

% change in money supply + % change in velocity = inflation rate + % change in output

6 = inflation rate + 3

Inflation rate = 3%

Inflation rate would be 3 %

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