Consider an economy described by the following equations: LRAS curve: = 7 AS curve: = IS curve: = 6 0.5 where output is measured in trillions of dollars. The MP curve is = 9 + as long as the nominal interest rate is > 0 (i.e. not at the zero lower bound).

iii) Which of the following equations describes the demand curve in "normal" times?

a) = 6 0.5

b) = 10.5 0.5

c) = 6 0.5

d) = 10.5 0.5

iv) In equilibrium, what are the levels of output and inflation?

a) = 7, = 7

b) = 7, = 4

c) = 4, = 7

d) = 4, = 4

v) Is the economy at the zero lower bound?

a) yes

b) no

c) there is not enough information