How can i find the inflation rate by just knowing the real GDP, money growth supply rate & real interest rate?
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Velocity remains Constant. GDP 3%, Money growth rate 10%, real interest rate 5%.
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Answer:
The exchange equation, M v = P y, M money supply, v verlocity of money, P is price level and y is real GDP.So the growth of P= the growth rate of M - the growth rate of y = 7%. It's classical theory. For Neo=classical theory you may use th LM curve. The increase in price will cause the real money supply to decrease and an in terest rate to increase.
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