Consider the Money Demand Function That Takes the Form (M/P)d

question 28

Multiple Choice

Consider the money demand function that takes the form (M/P) d = kY, where M is the quantity of money, P is the price level, 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 rate of inflation in this country?

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

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Definitions:

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