03 Jun QuestionQuestion Question 1: Suppose that an economy consi
QuestionQuestion
Question 1: Suppose that an economy consi
Question 1: Suppose that an economy consists of only two types of products:
bread and automobiles. Sales and price data for these two products for two different years are as follows:
YEAR
No. of bread
2006
2012
500,000
400,000
Price of bread
sold
$10
$20
No. of
automobiles sold
200
240
Price of
automobiles
$25,000
$30,000
a. (2 points) Calculate nominal GDP in 2006 and 2012.
b. (2 points) Calculate real GDP in 2006 and 2012, using 2006 as the base year.
c. (2 points) Calculate the GDP deflator in 2006 and 2012, using 2006 as the base year.
d. (2 points) Calculate the consumer price index in 2006 and 2012, using 2006 as the base year.
e. (2 points) Calculate the rate of inflation in 2012 by using the GDP deflator.
f. (2 points) Calculate the rate of inflation in 2012 by using the CPI.
g. (1 points) Explain why your answers in parts e and f are different.
Question 2: Consider a closed economy described by the following equations:
Y=C+I+G
Y = 5,000
G = 1,000
T = 1,000
C = 250 + 0.75 ( Y T )
I = 1,000 50 * r
a. (3 points) In this economy, compute private saving, public saving, and national saving.
b. (2 points) Find the equilibrium interest rate.
c. (2 points) Draw a graph containing the saving and investment curves for this economy. Show the market for loanable funds equilibrium.
d. (2 points) Now suppose the G rises to 1,250. Compute private saving, public saving, and national saving.
e. (2 points) Find the new equilibrium interest rate.
f. (1 points) On a new graph, draw the investment curve and the new saving curve. Show the new equilibrium in the market for loanable funds.
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