Suppose you expect the Bank of Canada (the Canadian central bank) to increase the Canadian money supply by 4.5% per year on average over the next decade. You also expect the Canadian economy to grow by 2.5% per year on average over the next decade. Answer the following. Make sure to provide a numerical answer to each part.

• What do you expect the average annual Canadian inflation rate to be over the next decade?
• If you expect the real interest rate to be 2.5% on average over the next decade, according to the Fisher effect, what do you expect the Canadian nominal interest rate to be on average over the next decade?