Consider the Money Demand Function That Takes the Form (M/P)^d

Multiple Choice

Consider the money demand function that takes the form (M/P) ^d = kY, where M is the quantity of money, P is the price level, k is a constant, and Y is real output. If the money supply is growing at a 10 percent rate, real output is growing at a 3 percent rate, and k is constant, what is the average inflation rate in this economy?

A) 3 percent
B) 7 percent
C) 10 percent
D) 13 percent