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

question 16

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, 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

---

Definitions:

Better Results

An improvement in outcomes or achievements compared to previous performances.

Chip In

To contribute something, often money, towards a common goal or pool of resources.

Diversity in Groups

The inclusion and integration of individuals with varying characteristics, such as race, gender, age, and cultural background, within a group or organization.

Homogenous Groups

Groups composed of members who are similar in terms of characteristics, beliefs, or backgrounds.