Explain briefly whether the following statements is TRUE or FALSE. a. When an economy is at full employment, its unemployment rate would be zero. b. Nominal interest rate is always higher than real interest rate.

Suppose that this year's money supply is $7.5 trillion, nominal GDP is $22.5 trillion, and real GDP is $15 trillion. a. Calculate velocity of money and the price level. (2 marks) b. Suppose that velocity of money is constant, and the economy's output remains unchanged next year. What will happen to the price level next year if the central bank raises the money supply by 2 percent? (2 marks) c. Suppose that velocity of money is constant, and the economy's output rises by 2 percent each year due to technological advancement. What will happen to the price level next year if the central bank keeps the money supply constant? (2 marks) d. If the central bank aims to achieve the target of two-percent inflation rate, does this inflation target require two-percent in money growth? Explain with the reference to your answer in part (c). (4 marks

Suppose that Country A is in the long-run equilibrium initially. a. Draw a well-labelled AD-SRAS-LRAS diagram to illustrate the current state of country A. (2 marks) b. Suppose one of Country A's trading partners experiences a growth of GDP and increases its import from Country A. Use the diagram in part (a) to show what happens to output, unemployment rate and the price level of Country A in the short run and long run. (8 marks