Suppose the Economy's Real Output Grows at an Average Rate

question 27

Multiple Choice

Suppose the economy's real output grows at an average rate of 3 percent per year.And suppose there is a 7 percent average rate of growth in the money supply, and velocity is constant.How would the inflation rate be affected?  

• A) The inflation rate would be -4 percent. 
• B) The inflation rate would be 4 percent. 
• C) The inflation rate would be 7 percent. 
• D) The inflation rate would be 10 percent.

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Definitions:

Depreciation Expense

An accounting method used to allocate the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Current Rate Method

A method of foreign currency translation where all financial statement line items are translated at the current exchange rate.

Translated

In accounting, the process of converting the financial statements of a foreign subsidiary to the parent company's reporting currency.

Highly Inflationary Economy

An economy experiencing rapid and excessive inflation rates, often leading to adjustments in financial reporting and monetary policy.