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. The rate of growth in real output will decline: decline in money growth rate leads to a declined rate of investment growth in the economy which result into a decline in real output growth rate.

b. The rate of growth of inflation rates will decline: decline in the rate of

money growth reduces the growth of purchasing power in the economy. As a

result, the growth of demand resulting money growth declines which leads to

reduced rate of growth in aggregate prices.

c. The rate of decrease of in interest rates will reduce: decline in growth of

money leads to a decline in the rate at which money demand grows implies

decline rate of decline in the cost of borrowing money (Interest rates)