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    Velocity, Inflation, and Money Supply

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    How would I find the rate the Fed should let the money supply grow in order to completely stop inflation, if the velocity of money is increasing by 3% and the economy is growing at a rate of 2.5% a year.

    Whats the difference between the statement "the money supply is fixed" and the statement "the money supply is exogenous"?

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    The key equation of the Quantity theory of money is PY = MV, where P is the price level, Y. is the real GDP, M is the money supply and V is the velocity. This equation can be represented as (percent change in the money supply) + (percent change in velocity) ...

    Solution Summary

    The following problem helps with a problem involving velocity, inflation and money supply.