The long run growth rate of real GDP for the United States is about 3%, and the expected real interest rate on corporate A bonds has averaged 2.8%.
a. If the growth rate of velocity is 0% and the rate of growth of the money supply is 6%, in the long run what is the nominal interest rate?
b. What will happen to the nominal interest rate in the long run if the rate of growth of the money supply falls to 3%?
c. What will happen to the nominal interest rate in the long run if the rate of growth of the money supply falls to 3% and the growth rate of real GDP falls to 2.5%?