Monetary Policy . CHAPTER 35 supply grow at this point, before Volcker started fighting inflation? (Hint: Use the AD equation.) b. Now, let's calculate how fast Volcker will let the money supply grow in the long run, after he pulls inflation down to 4% per year. Remember, he'll assume that in the long run, the economy will just grow at the potential growth rate. (Hint: Use AD again.) c. In the short run, when Volcker cuts money growth to the rate you calculated in part b, the economy won't grow at the Solow rate. Instead, real output will grow at whatever rate the SRAS dictates. In terms of algebra, this means you have to combine SRAS and AD; it's a system of two equations and two unknowns: infla- tion and real growth. You know the values of money growth, expected inflation, and the potential growth rate already. In the short run, what will real growth and inflation be? 1. a. 13% money growth b. 7% money growth c. 0% real growth (close to the truth). 7% inflation