Question 3: The Quantity Theory and the Fisher Effect [16 Points) Suppose that in El Salvador the velocity of money is constant, real GDP falls by 1.4% per year, the stock on money grows by 8.9% per year, and the nominal interest rate is 4.5%. (a) According to the quantity theory, what must the inflation rate be in El Salvador? [4 Points] (b) Calculate the real interest rate in El Salvador [2 Points] (e) Suppose that the central bank decides to decrease the money growth rate to 5% per year in El Salvador (%AM = 5%). Assume that the classical dichotomy holds. Calculate the nominal interest rate after the decrease in the growth rate of the money supply. [6 Points] (d) Briefly discuss two social costs associated with an expected increase of inflation [4 Points]