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Dynamic aggregate demand (AD) can be derived using the quantity theory of money. Drag labels into the equation below so that it accurately expresses the quantity theory of money in dynamic form. Suppose that the velocity of money is stable, 4% real economic growth is occuring, the rate of inflation is 4%, unemployment is 5.3%, and the marginal propensity to save is 3%. By how much has the money supply grown? Enter your answer as a percentage.

Sagot :

The money supply growth is 8%

Solution:

The quantity theory of money states that the general price level of goods and services is

directly proportional to the money supply.

In its normal form, the equation of quantity theory of money is as follows: MV = PY

Here,

M is the money supply,

V is the velocity of money.

P is the general price level, and

Y is the GDP

In its dynamic form, the equation becomes:

Growth in money supply +Growth in velocity = Infltaion+ Real economic growth

It is given that the real economic growth is 4%, and inflation is 4%. The calculation of growth

In money supply is as follows: Growth in money supply +Growth in velocity = Infitaion+ Real economic growth

Growth in money supply +0 = 4%+4% = 8%

The Quantity Theory of Money is a framework for understanding price changes related to the money supply in an economy. He argues that an increase in the money supply causes inflation and vice versa. If the change is negative and large enough.

Learn more about Real economic growth here:- https://brainly.com/question/13942584

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