Which of the following predictions can be made using the growth rates associated with the quantity equation, assuming velocity is stable?
A) If the money supply grows at a faster rate than real GDP, there will be inflation.
B) If the money supply grows at a slower rate than real GDP, there will be inflation.
C) If the money supply grows at the same rate as real GDP, the price level will be fall and there will be deflation.
D) If the money supply grows at the same rate as real GDP, the price level will also increase at the same rate as real GDP.

Question

Quizplus · Accepted Answer

If the money supply grows faster than real GDP and velocity is stable, the excess money supply leads to higher prices, causing inflation.

Which of the Following Predictions Can Be Made Using the Growth