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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, what must the growth rate of money be to the inflation target?

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Karabo99

Answer:

The growth rate of money be to the inflation target must be 6.1%

Explanation:

1.02*P = [(1 + g)*M*V]/(1.04*Y)

1.02*P = [(1 + g)/1.04]*P

1 + g = (1.04)(1.02)

    g =  6.1%

Therefore, The growth rate of money be to the inflation target must be 6.1%

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