The money supply in the fictitious nation

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Reference no: EM13996166

For the last several years, the money supply in the fictitious nation of Mauritania has been rising by 10% annually, and inflation has been running at 8%. The central bank is going to cut growth of the money supply back to 3% annually. Which of the following statements regarding the effects of this action is true, ceteris paribus?

A. According to the quantity theory of money, inflation will be 1% in the next year.

B. According to the quantity theory of money, economic growth will slow down.

C. If the assumption of rational expectations holds, output will fall by 10% in the next year.

D. If the assumption of adaptive expectations holds, there will be no effect on output in the following year.

E. None of the above

Reference no: EM13996166

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