If the Quantity of Money Grows at 4 Percent a Year

question 220

Multiple Choice

If the quantity of money grows at 4 percent a year, velocity grows at 2 percent, and real GDP grows at 2 percent a year, then the inflation rate equals

• A) 6 percent.
• B) 2 percent.
• C) 0 percent.
• D) 8 percent.
• E) 4 percent.

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Definitions:

Percentage

A way of expressing a number as a fraction of 100, used to compare proportions or calculate ratios.

Efficiency Loss

The loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is unattainable.

Tax

Compulsory financial obligation or different form of levy placed on a taxpayer by a government entity to finance public spending.

Excise Tax

A tax imposed on specific goods, services, or activities within a country, often levied on items like tobacco, alcohol, and gasoline to discourage their use or generate revenue.