Question

In the country of Orcam, the velocity of money is constant. Real GDP grows by 1 percent per year, the money stock grows by 13 percent per year, and the nominal interest rate is 10 percent. Calculate the growth rate of nominal GDP.

Answer 1

13%

Step-by-step explanation:

We first of all start by calculating the growth rate of inflation

Inflation growth = money stock growth - real GDP

Money stock growth has been given to be = 13%

Real GDP itself is also having a value = 1%

= 13% -1%

= 12% inflation growth

We calculate the nominal gdp growth from here:

Nominal gdp = real GDP + inflation growth

= 1% + 12%

= 13%

Thank you!