Question

the annual average percentage change in real gdp is 2.7%, and the annual average percentage change in velocity is 1.1%. sing the monetary rule discussed in the text, what percentage change in the money supply will keep prices stable (on average)?

Answer 1

In order to keep prices stable on average, the percentage change in the money supply should be 1.6%.

The monetary rule discussed in the text states that in order to keep prices stable (on average), the percentage change in the money supply should be equal to the sum of the percentage change in real GDP and the percentage change in velocity.

Using the given figures, we can calculate the required percentage change in the money supply:

Percentage Change in Money Supply = 2.7% + 1.1% = 1.6%

This means that the money supply should increase by 1.6% each year in order to maintain price stability.

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