Suppose the velocity of money (V) is constant. Money supply (M) is growing at 5% per year, output (Y ) is growing at 2% per year and interest rate (r) is 4%. Using the knowledge of the quantity theory of money and the Fischer effect: 

a) Solve for i (nominal interest ratejus)

b) If the Central Bank increases the money supply by 2 percentage point per year. find the change in nominal interest rate. 

c) Suppose the growth rate of Y falls to I". per year. what will happen to inflation? 

What can the Central Bank do if it wishes to keep inflation constant?