Question: Consider the Quantity Theory as given by the Cambridge Equation: MV=PY. Recall that under the Quantity Theory, velocity, V, is assumed to be constant. Suppose

Consider the Quantity Theory as given by the Cambridge Equation: MV=PY. Recall that under the

Quantity Theory, velocity, V, is assumed to be constant. Suppose that in 2015, the Fed increased

money supply by 6%. In addition, you know that real GDP growth during 2015 was 2%. What was

the inflation rate (approximately) in 2015?

4%

-4%

8%

2%

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