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Suppose the Full-Employment Level of Real GDP Is Increasing at a Rate

Question 17

Multiple Choice

Suppose the full-employment level of real GDP is increasing at a rate of 3% per period and the money supply is growing at a 4% rate. Using the equation of exchange, what is the value of the long-run inflation rate, assuming constant velocity?


A) 7%
B) 4%
C) 1%
D) -1%

Correct Answer:

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