Question 2.4 Recall the Fisher equation in expectational form 1+z'2 = (1+)(1+R2) or, after a logarithmic approximation i2 = 71'; + R2. Here, R2 is the real interest rate that investors (who lend to the government) require for their lending, and 7T3 is the rate of ination that the investors expect in period 1 to occur between period 1 and period 2. Assume that the government promises the investors to keep the money supply constant, and investors trust this promise. What is the nominal interest rate investors require on their lending? I Question 2.5 Assume that investors in period 1 lend to the government at the interest rate 2 that you determined in the previous question. At the beginning of period 2, the government can choose a different growth rate of money supply 934 than gM = 0 it promised. How can the government reduce the real value of the outstanding debt