Define inflation and what are different costs of inflation? Explain the role played by country’s Central Bank in controlling inflation.( K1, S1 ),

Answer the following Questions. Answers must be supported by schedule/diagram where necessary.

1.    Define inflation and what are different costs of inflation? Explain the role played by country’s Central Bank in controlling inflation.( K1, S1 ),

2.    Explain Quantity Theory of Money (QTM). Explain the following in the context of QTM.
(K2, S1)
a.    What is effect of an increase in money supply in economy?
b.    Explain how an increase in price level affects the real value of money?

3.    Briefly explain the different types of Unemployment? .( K1, S2 )
a.    What is relationship between inflation and unemployment?
b.    During a period of one year, if in an economy, 5% of the employed workers lose their jobs and 15% of unemployed workers find jobs. Calculate the natural rate of unemployment in that economy.

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