(g) A Phillips curve is given by t=te+10%-2ut where te=t-1 and also t-1=2%. Calculate the natural rate of unemployment. Imagine further that the economy at time t is at the natural rate of unemployment. Calculate the inflation rate at time t. Imagine further that the unemployment rate at time t+1 is 1 percentage point lower then at time t. Calculate the inflation rate at time t+1.

(h) Consider the following IS curve:

Y=700-8000r+x

with x=0.05

Let the natural rate of output be 600. What is the natural rate of interest?

(i) Consider the following numerical example of the IS curve and Phillips curve:

Y=1000-1000r+x

x=0.05

-=0.5Y-Yn

=2%

Yn=800

What interest rate should the central bank set to reach an inflation of 2%?

(j) Answer the following statements with True or False:

(i) The real interest rate can never be negative.

(ii) If the RBNZ wants to lower inflation it will have to lower the interest rate.

(iii) If the economy starts with an output gap that is zero and the government decides to increase spending, the central bank could increase the interest rate to avoid higher inflation.

(iv) If the economy is in a recession, there is a negative output gap.

(v) Bitcoin is money.