Using the quantity theory of money, suppose V is constant, money M grows at 12%, real income
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Using the quantity theory of money, suppose V is constant, money M grows at 12%, real income Y grows at 4%, and the nominal interest rate is 11%.
a) What is the real interest rate?
b) Now suppose that real income grows at 6% and money supply growth remains at 12%,what is the real interest rate?
c) What must be the new money growth rate to maintain the real interest rate at the level
from part (a)?
Expert Answer:
Equation of Exchange The quantity theory of money uses the equation of exchange MV PY where M Money supply V Velocity of money assumed constant in thi... View the full answer
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