Suppose that the Fed started to interpret the portion of the dual mandate dictating "stable prices" to mean
that there should be an inflation rate of zero percent. If you anticipate GDP to increase by 3 percent in the following year and velocity to remain constant, what rate of money supply growth should the Fed target to have a zero percent inflation rate. Why?
We will use the following equation to see how much money supply growth is needed to achieve a 3 percent... View the full answer