Problem 1: In country of Wiknam, the velocity of money is steady. Real GDP grows by five percent per year, the money stock increases by 14 percent per year, and the nominal interest rate is 11 percent. What is real interest rate?
Problem 2: In brief illustrate the meaning of “the full-crowding out” and “the neutrality of money” in Classical model. What do they imply about the effectiveness of government policies to enhance the economic performance of the country?