Calculate the average rate of change of velocity. Using this new number for velocity, if the growth of real GDP growth remains at its average, and your desired rate of inflation hasn’t changed, what should money growth be?

c) It is 1980, and you do not know that velocity is going to decline over the next five years. If you keep the growth rate of money at the level determined in (a), what would be the rate of inflation?

d) It is now 1995. As you can see in Figure 18.7, velocity has been declining, on average, for most of the past 15 years. Let’s say that the average growth of velocity during this time is 3 percent. If you continue to target money growth to achieve a desired 5-percent rate of inflation and real GDP continues to grow at a 5-percent rate, what is going to happen to actual inflation over the next few years?