Assume that all wages and prices are completely and immediately flexible. If the

Question

          

1.    Assume that all wages and prices are completely and immediately flexible.  If the growth rate of the money supply is 5%, the growth rate of the velocity of money is 8% and the inflation rate is 9%, what is the Solow growth rate?

   

1.    Assume that all wages and prices are completely and immediately flexible.  If the growth rate of the money supply is 5%, the growth rate of the velocity of money is 8% and the inflation rate is 9%, what is the Solow growth rate?

   Assume that all wages and prices are completely and immediately flexible.  If the growth rate of the money supply is 5%, the growth rate of the velocity of money is 8% and the inflation rate is 9%, what is the Solow growth rate? Assume that all wages and prices are completely and immediately flexible.  If the growth rate of the money supply is 5%, the growth rate of the velocity of money is 8% and the inflation rate is 9%, what is the Solow growth rate?

Explanation / Answer

M*V = P*Y

Solow growth rate = 5%*8%/9% = 4.44%

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