Short Answers

a$)$ How does the Phillips curve explain the tradeoff between the unemployment and

inflation? Illustrate with a graph.

b$)$ How do deposit insurance and the "too big to fail" policy increase moral hazard?

c$)$ The demand for money helps determine the equilibrium level of the interest rate, even though holding money does not earn any interest income. How is this possible? Explain in detail.

d$)$ What is aggregate demand? Why is the aggregate demand curve downward sloping?

Derive the AD curve graphically from IS$-$LM Model and show how price and output are related in the long run.

e$)$ The IS$$LM model simultaneously determines equilibria in two markets. Which two

markets? What two variables adjust to bring equilibrium in the markets?