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(n) _____

A) inflation rate of 4 percent, if the velocity of money in circulation is constant.
B) inflation rate of -4 percent, if the velocity of money in circulation is constant.
C) $7 increase in the price level each year.
D) $7 decrease in the price level each year.
E) increase in the velocity of money in circulation.