Suppose real GDP is growing at 4%,the money supply is growing at 11%,the velocity of money is constant,and the real interest rate is 6%. a. What is the current inflation rate and nominal interest rate?
b. If the money supply growth rate increases to 15 percent,how will your answers in part(a) change?
c. If you were an investor, how would the change in the money supply growth affect your real profitability,assuming that you now receive the new nominal interest rate?
d. Based on your previous answers,would you prefer a fixed or a floating interest rate on your investments? Which would you prefer if you thought the money supply growth was going to be reduced?