Chapter 1. Chapter 4 – Problem 2

Step 1

Work It Out

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You must read each slide, and complete any questions on the slide, in sequence.

Question

In the country of Orcam, the velocity of money is constant. Real GDP grows by 5 percent per year, the money stock grows by 14 percent per year, and the nominal interest rate is 11 percent.

What is the growth rate of nominal GDP?

Growth Rate of Nominal GDP = a+gNtjpaMI8=%

Review Section 4-2 for a discussion of quantity theory of money.

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Step 2

Question

In the country of Orcam, the velocity of money is constant. Real GDP grows by 5 percent per year, the money stock grows by 14 percent per year, and the nominal interest rate is 11 percent.

What is the inflation rate?

Inflation Rate = Q3PdQ4iKdKE=%

Review Section 4-2 for a discussion of quantity theory of money.

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Step 3

Question

In the country of Orcam, the velocity of money is constant. Real GDP grows by 5 percent per year, the money stock grows by 14 percent per year, and the nominal interest rate is 11 percent.

What is the real interest rate?

Real Interest Rate = XvVM00l89Is=%

Review Section 4-2 for a discussion of quantity theory of money.

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