You Are the Head of the Central Bank and You

question 32

Multiple Choice

You are the head of the central bank and you want to maintain 2 percent long-run inflation, using the quantity theory of money. If the real GDP growth is 4 percent and velocity is constant, you suggest a:

• A) 6 percent interest rate.
• B) 6 percent money supply growth.
• C) 2 percent money supply growth.
• D) 0 percent money supply growth.
• E) 2 percent interest rate.

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Definitions:

Economic Growth

An increase in the production of goods and services in an economy over a period of time, often measured by the rise in the country's gross domestic product (GDP).

Industrially Advanced Countries

High-income countries such as the United States, Canada, Japan, and the nations of western Europe that have highly developed market economies based on large stocks of technologically advanced capital goods and skilled labor forces.

IACs

An abbreviation that could stand for various entities or concepts; without additional context, providing a specific definition is not feasible.

Real Per Capita Output

A measure of the economic output of a country per person, adjusted for inflation, indicating the average living standard or economic well-being of its citizens.