Answer to Question #275846 in Macroeconomics for Sajjad Karim Sajja

Question

1. If history repeats itself and we see a decline in the rate of money growth, what might you expect to happen to

a. Real output?

b. The inflation rate?

c. Interest rates?

Answer 1

a. Real output: Uncertain

b. The inflation rate: Declines

c. Interest rates: Uncertain

The decline in money growth rate may lead to recession however the real output depend on resources and technology and not on supply of money. The rate of inflation tends to decline because inflation rate is connected to the rate of growth of money as it is computed as rate of growth in money supply minus the rate of growth in real money demand. Interest will be uncertain due to the spending nature of the people.