The inflation rate equals the money growth rate minusthe real GDP growth rate

This statement is a simplified version of the Quantity Theory of Money, which is often expressed with the equation MV = PY.

Here's a step-by-step breakdown:

1. M stands for the money supply, or the total amount of money in circulation.

2. V stands for the velocity of money, or the rate at which money changes hands.

3. P stands for the price level, which can be thought of as an average of all prices in the economy.

4. Y stands for real GDP, or the total value of all goods and services produced in the economy, adjusted for inflation.

According to the Quantity Theory of Money, if the money supply (M) and the velocity of money (V) are constant, then an increase in the price level (P) must be matched by an increase in real GDP (Y).

In other words, if the economy is producing more (Y is increasing), then prices must fall (P must decrease) to keep the equation in balance. Conversely, if the economy is producing less (Y is decreasing), then prices must rise (P must increase) to keep the equation in balance.

So, the statement "The inflation rate equals the money growth rate minus the real GDP growth rate" is a simplified way of saying that if the money supply is growing faster than real GDP, then we should expect to see inflation. Conversely, if the money supply is growing slower than real GDP, then we should expect to see deflation.