Consider the Money Demand Function That Takes the Form M

question 29

Multiple Choice

Consider the money demand function that takes the form M / P = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

• A)3 percent
• B)7 percent
• C)10 percent
• D)13 percent

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Definitions:

Dream

During sleep, a person experiences a flow of images, thoughts, and emotional reactions in their mind.

Flail

A tool consisting of a handle attached to a striking head by a flexible joint, used historically for threshing grain or in a weapon context.

Somnambulism

Somnambulism, also known as sleepwalking, is a disorder that involves walking or performing other activities while appearing to be asleep.

Wandering

An aimless or undirected movement or thought pattern.