The natural level of output is the level of output that occu

The natural level of output is the level of output that occurs when: The economy is operating at the un employment rate consistent with both the wage-setting and price - setting equation

Solution

6 d. Both the goods and financial markets are in equilibrium i.e. where IS-LM intersect.

7. c.An increase in inflation rate, Phillips curve claims that there is a trade off between unemployment rate and inflation rate in the economy. More will be the inflation rate, less will be unemployment rate and vice verca.

8. d. A 4% nominal money growth rate and 4% inflation as these two will counter balance each other and growth rate will be equal to zero.

9. 166.67 (200/1.20)

10. d. Mdedium of account, unit of account and store of exchange. Money is a function of four, medium, unit, standard and store.