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Suppose that natural real output in the country of Eudemonia grows at a steady rate of 3 percent per year. In the past, velocity has been approximately constant, and the Eudemonian Central Bank (ECB) has maintained a target reate of growth of 4 percent per year for the money stock. What would be the resulting rate of inflation? Now supple that the introduction of Internet banking allows people to make transactions on line without holding larget amount of currency or bank balances. As Internet banking spreads, velocity begins to increase at a rate of 3 percent per year. What will happen to the rate of inflation? How could the ECB offset the impact of inflation, if any?

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Macroeconomics, Economics

Category:- Macroeconomics
Reference No.:- M9474339

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