What will be the corresponding nominal interest rate

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(a) In the country of Wiknam, real GDP is fixed by factor endowments and technology and the velocity of money is constant. The money stock grows by 14% per year and the nominal interest rate is 16%. What is the real interest rate?

(b) Now assume that In the country of Wiknam the velocity of money is constant but real GDP grows by 5% per year, the money stock grows by 14 % per year, and the nominal interest rate is 11%. What is the real interest rate?

(c) Suppose that the central bank of Wiknam wants to reduce the long-run rate of inflation to 5% per year If the velocity of money is constant and GDP continues to grow at 5% per year , what must the new rate of money growth be?

(d) Suppose that the velocity of money is not constant but is growing at 1% per year. Real GDP is growing by 5% per year. If the central bank wants to reduce the rate of inflation to 3%, what must be the new rate of money growth? If the real rate if return on capital is 2%, what will be the corresponding nominal interest rate?

Reference no: EM13207204

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