Suppose the central bank subscribes to a monetarist approach to monetary policy. The central bank believes that the velocity of money grows at a predictable rate of 2% per year and that potential real GDP grows at 4% per year. If the central bank observes a monetary policy rule that stipulates money supply growth of 5% per year, it will expect an inflation rate of 11% Y per year and nominal GDP growth of 7% Y per year.

Suppose the central bank subscribes to a monetarist approach to monetary policy. The central bank believes that the velocity of money grows at a predictable rate of 2% per year and that potential real GDP grows at 4% per year. If the central bank observes a monetary policy rule that stipulates money supply growth of 5% per year, it will expect an inflation rate of 11% Y per year and nominal GDP growth of 7% Y per year.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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