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ECONOMICS – Answer Writing Challenge, July 7, 2014

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ECONOMICS – Answer Writing Challenge, July 7, 2014

1) Explain the determination of output and employment in a macroeconomy under the conditions when individual are subject to 

  i) no money illusion
 ii) money illusion
(200 words)
2) An individual finds that all his receipts (including income) and payment transactions are in the form of money that bears no interest. However he can convert money into bonds and earn interest income but that involves  a fixed cost of each conversion transaction. What are the determinants of the individual’s demand for holding money? (200 words)
3) Explain the concept of an automatic fiscal stabilizer. Give Examples. (200 words)