Monetary Growth and Inflation Practice Test

Based on the money supply growth shown, assume real GDP growth stays at 3% and velocity is stable in the long run. Which statement correctly distinguishes nominal from real outcomes in the long run?

Table: Long-Run Growth Rates (Economy E)

Variable | Growth rate

---|---:

Money supply | 9%

Real GDP | 3%

Based on the money supply growth shown in the table, assume real GDP grows at a stable 2% per year and velocity is stable in the long run. In the long run, what outcome is most consistent with the relationship between sustained money growth and inflation?

Table: Annual Money Supply Growth and Inflation (Economy A)

Money supply growth (%) | Inflation rate (%)

---|---

4 | 2

6 | 4

8 | 6

10 | 8