Imagine that you are the Governor of the Central Bank of Kenya. Assume, further, that the money supply has been growing at 3 % per year. You have been called before the National Assembly to testify about the long-run effects of increasing the growth of the money supply to 10 % per year. State and then explain the long-run effects of this change on each of the following (give numerical estimates where possible):

(i) The annual rate of inflation

(ii) The real interest rate

(iii) The nominal interest rate

(iv) The real exchange rate

(v) The nominal exchange rate

(vi) Investment (ignore both taxes and uncertainty)

(vii) Real GDP