Answer to Question #14228 in Economics of Enterprise for tobias

Question

Suppose real GDP is growing at 4 percentage , the money supply is growing at 11 percentage , the velocity of moey is costant and the real interest rate is 6 percentage.

What is the currect inflation rate and interest rate

Answer 1

a) M/P=Y/V
Y - growing by 4% so coefficient = 1.04
M - growing by 11% so coefficient = 1.11
V - constant =1
1.11/P=1.04/1
P=1.11/1.04≈1.067≈+6.7%

r-real interest rate
i-nominal interest rate
π-inflation
(1+r)=(1+i)/(1+π)
1.06=(1+i)/(1+0.067)
i=(1.06*1.067)-1
i≈0.13102≈13.10%
______ ______ ______ ______

(b)
M/P=Y/V
Y - growing by 4% so coefficient = 1.04
M - growing by 15% so coefficient = 1.15
V - constant =1
1.15/P=1.04/1
P=1.15/1.04≈1.1057692≈+10.57%

r-real interest rate
i-nominal interest rate
π-inflation
(1+r)=(1+i)/(1+π)
1.06=(1+i)/(1+0.1057)
i=(1.06*1.1057)-1
i≈0.1720≈17.20%
______ ______ ______ ______

i¹≈13.10%
i²≈17.20%
Δi=(17.20/13.10)-1≈
≈1.3129-1≈+31.29%