"Suppose that the economy can be described by the following 3 equations:
ut-ut-1=-0.4(gyt-5%) Okun's law
πt-πt-1=-(ut-4%) Phillips Curve
gyt=gmt-πt Aggregate Demand
a) What is the natural rate of unemployment for this economy?
Suppose the economy has been in equilibrium for a while and the inflation rate is 15%.
b) What is the growth rate of output? What is the growth rate of the money supply?
Suppose authorities want to use monetary policy to reduce the inflation rate to 7% in 2 years and keep it there.
c) How many points year of excess unemployment are required to achieve that?
d) What happens to unemployment and output growth rate in year t, t+1, t+2 and t+3?
e) What is the rate of nominal money growth in year t, t+1, t+2, and t+3?"