Problem Set 1-ECON104 (1).pdf - Problem Set 1 1(30 points Below are some data from the land of milk honey and cheese EXPLAIN YOUR ANSWERS WELL SHOW ALL

# Problem Set 1-ECON104 (1).pdf - Problem Set 1 1(30 points...

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Problem Set 1 1. (30 points) Below are some data from the land of milk, honey, and cheese. EXPLAIN YOUR ANSWERS WELL. SHOW ALL EQUATIONS YOU USED IN CALCULATIONS. Year Price of milk Quantity of milk Price of Honey Quantity of Honey Price of cheese Quantity of cheese 2012 \$3 100 \$3 50 \$10 50 2013 \$3 150 \$4 50 \$15 100 2014 \$5 200 \$5 120 \$20 150 a. Calculate nominal GDP, real GDP, and the GDP deflator for each year, using 2012 as the base year. b. Compute the growth rate of nominal GDP, real GDP and GDP deflator in 2013 and 2014. c. Did economic well-being (measured by the growth rate of real GDP) rise more in 2013 or in 2014? Explain. 2. (30 points) Assume that the typical consumer basket consists of 20 pounds of apple and 10 pounds of cheese. Assume that the base year is 2015. The prices are given in the following table: Apple Cheese Price Price 2013 \$2 \$15 2014 \$2 \$20 2015 \$4 \$30 Calculate CPI and compute the inflation rate of CPI. EXPLAIN YOUR ANSWERS WELL. SHOW ALL EQUATIONS YOU USED