Reference no: EM131301661

Question:

During the 1960s, 1970s, and 1980s, the velocity of money circulation (of M2) was constant. The growth rate of real GDP slowed from 5 percent annual growth rate in the fast-expanding 1960s to a more moderate pace of 3 percent annually during the 1970s and 1980s. The growth rate of the quantity of M2 increased from around 7 percent in the 1960s to around 9.5 percent in the 1970s and slowed to around 8 percent in the mid-1980s, and the inflation rate moved in line with the changed money growth rate. During the 1990s, the M2 growth rate slowed again to less than 6 percent but the velocity of circulation increased to 1.5 percent. With the real GDP growth rate unchanged, the inflation rate fell. The 2000s saw the M2 growth rate increase but the velocity of circulation shrank at a similar rate to that at which it had grown during the 1990s. Inflation remained close to its level in the previous decade, but real GDP growth slowed. Aside from the small increases in velocity growth during the 1990s and 2000s, which cancelled each other out, all the decade-by-decade variation in the inflation rate has resulted from changes in the growth rate of the quantity of money.

(a) What can you say about the rate of growth of the nominal GDP in the 2000s? Carefully explain how you obtained your answer from the information given.