In an Economy in Which Real Output Grows at an Average

Multiple Choice

In an economy in which real output grows at an average rate of 3 percent per year, a 7 percent average rate of growth in the money supply would result in

A) an inflation rate of 4 percent, if velocity were constant.
B) an inflation rate of −4 percent, if velocity were constant.
C) a $4 increase in the price level per year.
D) a $4 decrease in the price level per year.