Consider a nation in which the money supply grows at a rate of 3% per year. The

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Consider a nation in which the money supply grows at a rate of 3% per year. The price level is constant at a value of 2; income velocity is increasing at a rate of 1.5% per year. From this, we can say that real output must be growing at a rate of ____ percent annually.

(Carefully follow all numeric instructions.)

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COLA(cost of living adjustment)

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Consider a nation where the inflation rate is currently 2% and bonds earn real interest of 3%. Calculate the cost of holding money (as opposed to bonds).

Express your answer "as a percent, but without the percentage sign." Follow all numeric instructions.

eliminate the negative effects of inflation, as long as inflation is predictable

Explanation / Answer

QUESTION 2.

Cost of holding Money = Nominal Interest rate = real interest rate + Inflation rate = 2 + 3 = 5

So, Cost of Holding Money = 5

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Consider a nation in which the money supply grows at a rate of 3% per year. The

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