1.Consider an economy described by the following equations.

The growth rate of real GDP in this economy is 3 percent per year, the money stock grows at 5 percent per year, and V is constant.

a.Using the above equations, calculate the equilibrium real interest rate r.

b.Using the quantity equation, find and using the Fisher equation, find the nominal interest rate i.

c.If there is an increase in investment demand, what happens to r, i, S, and I?Illustrate and explain.