The inflation rate if real incomes were growing faster

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Reference no: EM13887108

Assuming the velocity of money is constant, nominal money supply is growing at 12 percent a year and real incomes are growing at 4 percent a year:

a) What is the inflation rate in this economy?

b) What would happen to the inflation rate if real incomes were growing faster?

c) If the inflation rate leads to an increase in the nominal interest rate, how does this affect the velocity or money? Would the inflation rate increase or decrease?

Reference no: EM13887108

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