The Table Below Shows Data for Indonesia Between 2005 and 2006

question 196

Multiple Choice

The table below shows data for Indonesia between 2005 and 2006.
$$\begin{array} { | l | l | l | } \hline & 2005 & 2006 \\\hline \text { Money growth rate } & 21.4 & 12.0 \\\hline \text { Real GDP growth rate } & 5.7 & 5.5 \\\hline\end{array}$$
Assume the rate of velocity change is constant. According to the quantity theory of money, Indonesia?s inflation rate

• A) will increase over the 12 months.
• B) is higher in 2005 than in 2006.
• C) was 17.5 percent in 2006.
• D) is 27.1 percent in 2005.

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Definitions:

Interest Rate Forward Contracts

Financial derivatives that lock in the future interest rate to be paid or received on a certain principal amount.

Financial Distress Costs

Expenses or losses incurred by a company when it is struggling to meet its financial obligations.

Capital Markets

Financial markets where long-term debt or equity-backed securities are bought and sold, aiding in the raising of capital.

Derivatives

Financial contracts whose value is based on the performance of an underlying asset, index, or interest rate, used for hedging risks or speculating.