Question: s (20 points) 1. What two things does the GDP measures? How can GDP measure two things at once? 2. What does the consumer price

s (20 points) 1. What two things does the GDP measures? How can GDP measure two things at once? 2. What does the consumer price index measure? List three ways in which it differs from the GDP deflator 3. What determines consumption and investment? 4. What determines the amount of output an economy produces in the long-run? 5. Why might a banking crisis lead to a fall in the money supply? 6. Write the quantity equation and explain it. What does the assumption of constant velocity imply? 7. What determines the natural rate of unemployment? Describe the difference between frictional unemployment and structural unemployment. 8. Explain the impact of an increase in the money supply in the short run and in the long run. 9. Explain why the aggregate demand curve slopes downward. Derive the graph of the AD curve from the IS-LM model. 10. What is meant by the "time inconsistency'' of economic policy? Why might policymakers be tempted to renege on an announcement they made earlier? In this situation, what is the advantage of a policy rule

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