Suppose a Constant-Money-Growth-Rate Rule of 3 Percent Is Being Considered

question 32

Multiple Choice

Suppose a constant-money-growth-rate rule of 3 percent is being considered.If it is estimated that average annual Real GDP growth is 3.5 percent and it turns out that velocity is rising by 2 percent a year on average,the rule would produce an average annual rate of inflation of __________ percent.

• A) 1.5
• B) 2.5
• C) 3.0
• D) 5.5
• E) 2.0

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Definitions:

Error of Estimation

Error of estimation is the discrepancy between an estimated value and the true value of a parameter being estimated.

Sampling Error

The error caused by observing a sample instead of the whole population, affecting the precision of statistical estimates.

Population Standard Deviation

The square root of the variance in a population, reflecting how much individual data points in the entire population deviate from the population mean.

Confidence Level

The degree of certainty or probability with which a parameter of a population is estimated.