Homework: Chapter 12 homework Score: 0 of 2 pts Checkpoint 2 Problem 3 Save 3 of

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Homework: Chapter 12 homework Score: 0 of 2 pts Checkpoint 2 Problem 3 Save 3 of 10 (0 complete) HW Score: 0%, 0 of 20 pts Question Help * The quantity of money grows at a rate of 20 percent a year, potential GDP grows at 6 percent a year, and the velocity of circulation increases at a rate of 1 percent per year, Calculate the inflation rate in the long run. The inflation rate in the long run is percent a year Enter your answer in the answer box and then click Check Answer All parts showing Clear All Check Answer

Explanation / Answer

This uses the quantity theory of money. Thus in this case we have MV=PY. Given the numbers above we have 20% + 1% = P +6%. Thus given this the change in prices or the inflation rate in the long run is P=15%.

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