<p>M * V = P * Y is not in a form of growth rate, so it needs to be changed into</p>

<p>ΔM + ΔV = ΔP + ΔY
Because V is constant, then</p>

<p>14 + 0 = ΔP + 5</p>

<p>ΔP = 9%</p>

<p>ΔP = Change in price = inflation</p>

CC BY-SA 4.0
2019-05-22T02:08:48.063Z
2019-05-22T02:08:48.063Z
Thoriq Akbar
<p>Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money
supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate.</p>

<p>My solution: 
Given M: 14%, V: Constant, Y: 5%, P: ? <br />
M * V = P * Y <br />
14 * V = P * 5 <br />
P = 14/5, am I right? <br /></p>

<p>If not, could you please lead me to the right answer..thanks</p>

CC BY-SA 4.0
2019-05-21T22:39:24.900Z
You are not correct.  You seem to have confused levels and changes
Henry
<macroeconomics><inflation><money-supply><money><quantity-theory-of-money>
Quantity theory of money
Random Dude
# Quantity theory of money

(Asked by: username_0 on 2019-05-21)

Suppose the velocity of circulation (V) is constant. Annual growth rate of real GDP is 5%. The money
supply grows by 14% per year. Use the quantity theory of money to calculate the inflation rate.

My solution:
Given M: 14%, V: Constant, Y: 5%, P: ?   
M \* V = P \* Y   
14 \* V = P \* 5   
P = 14/5, am I right?

If not, could you please lead me to the right answer..thanks

**Tags:** macroeconomics, inflation, money-supply, money, quantity-theory-of-money

> **Comments:**
> **username_1**: You are not correct.  You seem to have confused levels and changes  

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## 1 answers

### Answer by username_2 on 2019-05-22. Score: 2

M \* V = P \* Y is not in a form of growth rate, so it needs to be changed into

ΔM + ΔV = ΔP + ΔY
Because V is constant, then

14 + 0 = ΔP + 5

ΔP = 9%

ΔP = Change in price = inflation


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